EXHIBIT 2.2
LATHAM & WATKINS LLP
Michael S. Lurey (State Bar #048235)
Robert A. Klyman (State Bar #142723)
Eric D. Brown (State Bar #211512)
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Telephone: (213) 485-1234
Facsimile: (213) 891-8763
Counsel for
Debtors and Debtors-in-Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF CALIFORNIA
In re Chapter 11 Case No.: 03-3470-All
through 03-3535-All
LEAP WIRELESS INTERNATIONAL, INC.,
and CRICKET COMMUNICATIONS, INC., et (Jointly Administered)
al.,
Chapter 11
Debtors.
DISCLOSURE STATEMENT
ACCOMPANYING THIRD AMENDED
JOINT PLAN OF REORGANIZATION,
AS MODIFIED, DATED AS OF JULY
18, 2003
Fed. Tax Id. Nos. 33-0811062 and 33-0879924
HEARING
Date: July 22, 2003
Time: 10:00 a.m.
Place: Courtroom 2
Judge: The Honorable Louise DeCarl Adler
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I. INTRODUCTION
Leap Wireless International, Inc. ("Leap"), its indirect
wholly owned subsidiary Cricket Communications, Inc. ("Cricket") and their
respective 64 subsidiaries and/or affiliates(1) (collectively, the "Debtors")
hereby submit this disclosure statement (the "Disclosure Statement") pursuant to
Section 1125 of the Bankruptcy Code, for use in the solicitation of votes on
their Third Amended Joint Plan of Reorganization, as modified (as it may be
amended, modified or supplemented, the "Plan"), filed with the United States
Bankruptcy Court for the Southern District of California on or about July 18,
2003.
On April 13, 2003 (the "Petition Date"), each of the Debtors
filed with the Clerk of the United States Bankruptcy Court for the Southern
District of California (the "Court") a voluntary petition for relief under
chapter 11 of the Bankruptcy Code. The Debtors have also filed with the Court
the Plan, which sets forth the manner in which Claims against, and Interests
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(1) Cricket Communications Holdings, Inc., a Delaware corporation;
Backwire.com, Inc., a Delaware corporation; Telephone Entertainment
Network, Inc., a Delaware corporation; Chasetel Licensee Corporation, a
Delaware corporation; Cricket Licensee (Albany), Inc., a Delaware
corporation; Cricket Licensee (Columbus), Inc., a Delaware corporation;
Cricket Licensee (Denver), Inc., a Delaware corporation; Cricket Licensee
(Lakeland), Inc., a Delaware corporation; Cricket Licensee (Macon), Inc.,
a Delaware corporation; Cricket Licensee (North Carolina), Inc., a
Delaware Corporation; Cricket Licensee (Pittsburgh), Inc., a Delaware
corporation; Cricket Licensee (Reauction), Inc., a Delaware corporation;
Cricket Licensee I, Inc., a Delaware corporation; Cricket Licensee II,
Inc., a Delaware corporation; Cricket Licensee III, Inc., a Delaware
corporation; Cricket Licensee IV, Inc., a Delaware corporation; Cricket
Licensee V, Inc., a Delaware corporation; Cricket Licensee VI, Inc., a
Delaware corporation; Cricket Licensee VII, Inc., a Delaware corporation;
Cricket Licensee VIII, Inc., a Delaware corporation; Cricket Licensee IX,
Inc., a Delaware corporation; Cricket Licensee X, Inc., a Delaware
corporation; Cricket Licensee XI, Inc., a Delaware corporation; Cricket
Licensee XII, Inc., a Delaware corporation; Cricket Licensee XIII, Inc., a
Delaware corporation; Cricket Licensee XIV, Inc., a Delaware corporation;
Cricket Licensee XV, Inc., a Delaware corporation; Cricket Licensee XVI,
Inc., a Delaware corporation; Cricket Licensee XVII, Inc., a Delaware
corporation; Cricket Licensee XVIII, Inc., a Delaware corporation; Cricket
Licensee XIX, Inc., a Delaware corporation; Cricket Licensee XX, Inc., a
Delaware corporation; Cricket Holdings Dayton, Inc., a Delaware
corporation; MCG PCS Licensee Corporation, Inc., a Delaware corporation;
Chasetel Real Estate Company, Inc., a Tennessee corporation; Cricket
Alabama Property Company, a Delaware corporation; Cricket Arizona Property
Company, a Delaware corporation; Cricket Arkansas Property Company, a
Delaware corporation; Cricket California Property Company, a Delaware
corporation; Cricket Colorado Property Company, a Delaware corporation;
Cricket Florida Property Company, a Delaware corporation; Cricket Georgia
Property Company, inc., a Delaware corporation; Cricket Idaho Property
Company, a Delaware corporation; Cricket Illinois Property Company, a
Delaware corporation; Cricket Indiana Property Company, a Delaware
corporation; Cricket Kansas Property Company, a Delaware corporation;
Cricket Kentucky Property Company, a Delaware corporation; Cricket
Michigan Property Company, a Delaware corporation; Cricket Minnesota
Property Company, a Delaware corporation; Cricket Mississippi Property
Company, a Delaware corporation; Cricket Nebraska Property Company, a
Delaware corporation; Cricket Nevada Property Company, a Delaware
corporation; Cricket New Mexico Property Company, a Delaware corporation;
Cricket New York Property Company, Inc., a Delaware corporation; Cricket
North Carolina Property Company, a Delaware corporation; Cricket Ohio
Property Company, a Delaware corporation; Cricket Oklahoma Property
Company, a Delaware corporation; Cricket Oregon Property Company, a
Delaware corporation; Cricket Pennsylvania Property Company, a Delaware
corporation; Cricket Texas Property Company, a Delaware corporation;
Cricket Utah Property Company, a Delaware corporation; Cricket Washington
Property Company, a Delaware corporation; Cricket Wisconsin Property
Company, a Delaware corporation; Leap PCS Mexico, Inc., a California
corporation.
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in, the Debtors will be treated. The Plan is attached to the Disclosure
Statement as Exhibit A. This Disclosure Statement describes certain aspects of
the Plan, the Debtors' businesses, and related matters. Unless otherwise defined
herein, each capitalized term contained herein has the meaning ascribed thereto
in the Plan.
The Plan represents a global settlement of all Intercompany
Claims and Litigation Claims between the Debtors and their Estates, the Holders
of Old Vendor Debt (in their capacity as such Holders) and Holders of Leap
General Unsecured Claims (in their capacity as such Holders), and is the product
of months of investigation and negotiations among the foregoing parties (and the
Leap Informal Noteholder Committee prior to the appointment of the Leap Official
Committee of Unsecured Creditors). As a result of the foregoing settlement, the
Debtors have been able to file the Plan - which provides for the preservation of
the Debtors as viable going-concern businesses - and expect to confirm the
Chapter 11 Cases on an expedited timetable. Without the settlement memorialized
in the Plan, the Chapter 11 Cases could deteriorate into free-fall chapter 11
cases and Holders of Allowed Claims and Interests would receive distributions
(if any) only after the conclusion of lengthy and expensive complex litigation.
Those distributions, moreover, would be reduced substantially due to the likely
deterioration of the value of the Debtors during prolonged Chapter 11 Cases and
the millions of dollars in legal and expert fees which would be incurred to
litigate the Intercompany Claims and Litigation Claims.
THE OFFICIAL COMMITTEE HAS INFORMED THE DEBTORS THAT A
SUBSTANTIAL DELAY IN CONFIRMING THE PLAN COULD JEOPARDIZE THE CAREFULLY CRAFTED
GLOBAL SETTLEMENT DESCRIBED ABOVE. IN ADDITION, THE DEBTORS BELIEVE THAT THE
BANKRUPTCY FILINGS HAVE ADVERSELY AFFECTED THE DEBTORS' BUSINESS. FOR EXAMPLE,
AS OF MAY 31, 2003, CRICKET HAD 1,475,406 SUBSCRIBERS, DOWN 38,071 SUBSCRIBERS
FROM MARCH 31, 2003. THE DEBTORS ALSO BELIEVE THAT PROLONGED BANKRUPTCY
PROCEEDINGS WILL REDUCE THE RECOVERY AVAILABLE TO CREDITORS AND WILL CONTINUE TO
ADVERSELY AFFECT THE CRICKET BUSINESS. ACCORDINGLY, TO EXPEDITE THE DEBTORS'
EMERGENCE FROM BANKRUPTCY, THE DEBTORS URGE HOLDERS OF CLAIMS AND INTERESTS TO
READ THE DISCLOSURE STATEMENT AND TO VOTE IN FAVOR OF THE PLAN.
In sum, the Plan provides for a reorganization of the Debtors
under Reorganized Leap. Specifically, the means of executing and implementing
the Plan are as follows:
On the Effective Date, (i) the Old License Holding Company
Common Stock will be cancelled and each Reorganized License Holding Company will
issue to Reorganized Leap 100% of the issued and outstanding shares of New
License Holding Company Common Stock, (ii) the Old Other Subsidiary Common Stock
will be cancelled and each Reorganized Other Subsidiary will issue to
Reorganized Leap 100% of the issued and outstanding shares of New Other
Subsidiary Common Stock, and (iii) the Old Property Holding Company Common Stock
will be cancelled and each Reorganized Property Holding Company will issue to
Reorganized Cricket 100% of the issued and outstanding shares of New Property
Holding Company Common Stock.
Also on the Effective Date, (i) the Old Leap Common Stock will
be cancelled, (ii) Reorganized Leap will issue and contribute 96.5% of the
issued and outstanding shares of New Leap Common Stock to CCH, (iii) Reorganized
Leap will contribute all of the New License Holding Company Common Stock to CCH,
and (iv) CCH will contribute all of such New Leap Common Stock and New License
Company Common Stock to Reorganized Cricket. Following such contributions, on
the Effective Date, CCH will be merged with and into Reorganized Cricket in a
"tax-free" reorganization in compliance with Section 368(a)(1)(G) of the
Internal Revenue Code, pursuant to which the Old CCH Common Stock will be
converted into 100% of the issued and outstanding shares of New Cricket Common
Stock. As a result, Reorganized Leap will own 100% of the issued and outstanding
shares of Reorganized Cricket and each of the Reorganized Other Subsidiaries,
and Reorganized Cricket will own 100% of the issued and
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outstanding shares of each of the Reorganized License Holding Companies, 100% of
the issued and outstanding shares of each of the Reorganized Property Holding
Companies and, temporarily until the distribution thereof to the Holders of Old
Vendor Debt Claims, 96.5% of the New Leap Common Stock.
On the Effective Date, or as soon thereafter as practicable,
the Holders of Old Vendor Debt Claims will receive from Cricket, on a Pro Rata
basis, 96.5% of the issued and outstanding shares of New Leap Common Stock and
New Senior Notes aggregating $350 million in principal amount.
On the Initial Distribution Date, and notwithstanding the
occurrence of the Effective Date: (a) Holders of Allowed Leap General Unsecured
Claims, including the Holders of Old Leap Notes, will receive, on a Pro Rata
basis, beneficial interests in the Leap Creditor Trust; (b) the Leap Creditor
Trust will receive the Leap General Unsecured Claim Cash Distribution
(approximately $80.0 million, minus a reserve in the approximate amount of $5
million for Administrative Claims against Leap, the actual amount of which may
vary materially; the amount initially withheld in reserve for Administrative
Claims and Priority Claims will be subject to negotiation between the Debtors
and the Official Committee); and (c) Holders of Allowed 12 1/2% Senior Secured
Claims will receive, on a Pro Rata basis, the 12 1/2% Senior Secured Claim
Distribution (approximately $200,000).
In addition, on the later of the Effective Date and the
Initial Distribution Date, Reorganized Leap will issue and transfer to the Leap
Creditor Trust: (a) 3.5% of the issued and outstanding shares of New Leap Common
Stock as of the Effective Date for Distribution to the Leap General Unsecured
Creditors and (b) the Leap Creditor Trust Assets (comprised of other assets that
have a value estimated to be approximately $30.0 million-$50.0 million)(2) for
subsequent sale and Distribution of the proceeds to the Leap General Unsecured
Creditors. The "Leap Creditor Trust Assets" to be transferred to the trust are
the following assets:
(i) the PCS licenses in the Bemidji, Minnesota (10 MHz);
Brainerd, Minnesota (10 MHz); Escanaba, Michigan (10
MHz); Pueblo, Colorado (10 MHz); and Salem, Oregon
(10 MHz) Basic Trading Areas ("BTAs") and any
cause(s) of action resulting from the proposed sale
thereof pursuant to a previously executed agreement;
(ii) Leap's stake in the Idaho joint venture with NTCH;
(iii) any Leap cause(s) of action listed in Leap's
Schedules, including the cause of action related to
the Endesa note receivable, together with any Leap
causes of action that are not otherwise released
under the Plan and that do not have, or could
reasonably be expected to have, a material adverse
effect on the Debtors or the Reorganized Debtors or
their respective businesses or prospects, as
reasonably determined by the Informal Vendor Debt
Committee in accordance with the Plan;
(iv) any cause of action that is part of the Leap Estate
arising from Bankruptcy Code sections 542, 543, 544,
545, 547, 548, 549 or 550, that is not otherwise
released under the Plan and that is not against a
potential defendant that is a vendor, customer or
other party with whom the Debtors
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(2) This range has been estimated by the Debtors based on prior testimony in
the Chapter 11 Cases that these assets had an aggregate value of
approximately $30 million, which the Debtors then increased to reflect
what the Debtors believe is an appropriate range of values for these
assets including the Endesa note receivable.
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or the Reorganized Debtors have, or reasonably expect
to have, a material business relationship, as
reasonably determined by the Informal Vendor Debt
Committee in accordance with the Plan;
(v) any and all Tax Refunds that are to be delivered to
the Leap Creditor Trust in accordance with the Plan;
(vi) Cash to be paid by Cricket in an amount equal to the
Leap Deposits (estimated to be approximately $2.5
million, but if all such deposits are assumed by the
Reorganized Debtors and corresponding amounts are
paid by Cricket, the maximum amount would be
approximately $3.3 million); and
(vii) the PCS licenses in the Bozeman, Montana (20 MHz);
Casper, Wyoming (15 MHz); Lewiston, Idaho (15 MHz);
and Redding, California (15 MHz) BTAs and any
cause(s) of action resulting from the proposed sale
thereof pursuant to a previously executed agreement.
IN ACCORDANCE WITH THE NEGOTIATED SETTLEMENT BETWEEN THE LEAP INFORMAL
NOTEHOLDER COMMITTEE AND THE INFORMAL VENDOR DEBT COMMITTEE LEADING TO THE PLAN,
ALL OTHER ASSETS OF LEAP THAT ARE NOT SPECIFICALLY LISTED ABOVE AND DEFINED AS
LEAP CREDITOR TRUST ASSETS IN THE PLAN WILL NOT BE TRANSFERRED TO THE LEAP
CREDITOR TRUST AND WILL REMAIN WITH REORGANIZED LEAP, INCLUDING FOR EXAMPLE
ONLY, OFFICE FURNITURE, FIXTURES, EQUIPMENT AND SUPPLIES; LEAP INTELLECTUAL
PROPERTY, INCLUDING THE "LEAP" TRADEMARK; RETIREMENT PLAN ASSETS; AND AN
INTER-COMPANY PAYABLE FROM CRICKET WHICH IS BEING RELEASED UNDER THE PLAN.
Following the Effective Date, after the satisfaction of all
Allowed Administrative Claims and Allowed Priority Claims against Leap and the
resolution of all Disputed Administrative Claims and Disputed Priority Claims
against Leap, any remaining Cash held in reserve by Leap will be distributed to
the Leap Creditor Trust. Notwithstanding anything set forth herein, if any Leap
Creditor Trust Assets are converted to Cash on or after the Initial Distribution
Date but prior to the Effective Date, the Cash proceeds shall be transferred to
the Leap Creditor Trust as soon as practicable upon such monetization,
notwithstanding the fact that the Effective Date has not occurred.
Holders of Old Leap Common Stock will receive nothing on
account of their Interests.
FOR AN ILLUSTRATION THAT DEPICTS THE GENERAL CORPORATE
STRUCTURE OF THE DEBTORS BEFORE AND AFTER THE REORGANIZATION UNDER THE PLAN AND
THAT SUMMARIZES THE DISTRIBUTIONS UNDER THE PLAN TO LEAP'S GENERAL UNSECURED
CREDITORS AND THE HOLDERS OF OLD VENDOR DEBT CLAIMS, PLEASE SEE THE CHARTS
ATTACHED HERETO AS EXHIBIT O.
The Holders of Old Vendor Debt hold valid, perfected and duly
enforceable security interests in all of the stock and assets of the License
Holding Companies, the assets of CCH, the stock and assets of Cricket and the
stock and assets of the Property Holding Companies. The only assets available to
Holders of Old Leap Notes under the Plan are the Leap General Unsecured Claim
Cash Distribution and those assets that will be transferred to the Leap Creditor
Trust for the benefit of such Holders pursuant to the Plan. There are no
material assets available for any Holders of Unsecured Claims against Cricket,
the License Holding Companies, the Property Holding Companies or the Other
Subsidiaries under the Plan (and in a chapter 7 liquidation such holders would
receive nothing). As a result, 96.5% of the New Leap Common Stock will be
distributed for the benefit of the Holders of Old Vendor Debt. All New Cricket
Common Stock and New Other Subsidiary Common Stock will be held directly by
Reorganized Leap for the benefit of the Holders of New Leap Common Stock.
Reorganized Cricket will hold
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directly all New License Holding Company Common Stock and New Property Holding
Company Common Stock. The issuance of all of the aforementioned stock does not
reflect any so-called "new value" plan or substantive consolidation of the
Debtors; instead, such issuance reflects the economic realities of these Chapter
11 Cases. In other words, if the Holders of Old Vendor Debt foreclosed on their
collateral, such Holders would own the Old License Holding Company Common Stock
(and the assets of the License Holding Companies, subject to the FCC Claim), the
Old Cricket Common Stock (and the assets of Cricket) and the Old Property
Holding Company Common Stock (and the assets of the Property Holding Companies).
Moreover, the Intercompany Releases provided on account of Intercompany Claims
do not take any value away from any Holder of a Claim against or Interest in
Cricket, the License Holding Companies or the Property Holding Companies because
any such Intercompany Claims are pledged to the Holders of Old Vendor Debt and
any recovery thereon would inure solely to the benefit of such Holders.
THE PLAN IS THE PRODUCT OF NEGOTIATIONS AMONG THE DEBTORS, THE
INFORMAL VENDOR DEBT COMMITTEE, THE INFORMAL NOTEHOLDER COMMITTEE (PRIOR TO THE
APPOINTMENT OF THE OFFICIAL COMMITTEE) AND THE OFFICIAL COMMITTEE. THE DEBTORS
BELIEVE THE PLAN REPRESENTS THE BEST POSSIBLE RETURN TO HOLDERS OF CLAIMS AND
INTERESTS AND URGE SUCH HOLDERS TO VOTE IN FAVOR OF THE PLAN.
THE INFORMAL VENDOR DEBT COMMITTEE URGES HOLDERS OF OLD VENDOR
DEBT TO READ THE DISCLOSURE STATEMENT AND VOTE IN FAVOR OF THE PLAN.
THE OFFICIAL COMMITTEE URGES HOLDERS OF LEAP GENERAL UNSECURED
CLAIMS TO READ THE DISCLOSURE STATEMENT AND VOTE IN FAVOR OF THE PLAN.
ALL HOLDERS OF CLAIMS AND INTERESTS ARE ENCOURAGED TO READ THE
PLAN AND THE DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR
REJECT THE PLAN. NO MATERIALS, OTHER THAN THE DISCLOSURE STATEMENT AND THE
EXHIBITS AND SCHEDULES ATTACHED THERETO OR REFERENCED THEREIN, HAVE BEEN
APPROVED BY THE DEBTORS FOR USE IN SOLICITING ACCEPTANCES OR REJECTIONS OF THE
PLAN.
* * * * *
MCG PCS, INC., A CREDITOR OF LEAP AND LEAP'S LARGEST
STOCKHOLDER, HAS SUBMITTED A COUNTERPOINT TO DEBTORS' DISCLOSURE STATEMENT,
WHICH IS ATTACHED AS EXHIBIT 1 TO THIS DISCLOSURE STATEMENT.
* * * * *
MCG'S COUNTERPOINT TO DEBTORS' DISCLOSURE STATEMENT EXPRESSES
SOLELY THE VIEWS OF MCG PCS. THE DEBTORS, THE INFORMAL VENDOR DEBT COMMITTEE AND
THE OFFICIAL COMMITTEE DISPUTE MCG'S COUNTERPOINT. THEIR RESPONSES TO MCG'S
COUNTERPOINT ARE ATTACHED AS EXHIBITS 2, 3 AND 4 TO THIS DISCLOSURE STATEMENT.
* * * * *
This Disclosure Statement is submitted pursuant to Section
1125 of the Bankruptcy Code to holders of Interests or Claims against the
Debtors in connection with (i) the solicitation of acceptances of the Plan and
(ii) the hearing to consider confirmation of the Plan, scheduled for
[_________], 2003 at 8:30 a.m.
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Attached as Exhibits to this Disclosure Statement are copies
of the following:
- Counterpoint to Debtors' Disclosure Statement from MCG
PCS, Inc. (Exhibit 1);
- Response of the Debtors to Counterpoint to Debtors'
Disclosure Statement from MCG PCS, Inc. (Exhibit 2);
- Response of the Informal Vendor Debt Committee to
Counterpoint to Debtors' Disclosure Statement from MCG
PCS, Inc. (Exhibit 3);
- Response of the Official Committee to Counterpoint to
Debtors' Disclosure Statement from MCG PCS, Inc.
(Exhibit 4);
- The Plan (Exhibit A);
- An Order of the Court dated [_________], 2003 (the
"Disclosure Statement Order") approving the Disclosure
Statement and establishing certain procedures with
respect to the solicitation and tabulation of votes to
accept or reject the Plan (Exhibit B);
- Leap Wireless International, Inc. Organizational Chart
(Exhibit C);
- Leap Wireless International, Inc. Annual Report on Form
10-K/A for the year ending December 31, 2002 (excluding
exhibits) (Exhibit D);
- Leap Wireless International, Inc. Quarterly Report on
Form 10-Q for the quarter ending March 31, 2003
(excluding exhibits) (Exhibit E);
- Liquidation Analyses (Exhibit F);
- Projections for Reorganized Leap (Exhibit G);
- Leap Budget (Exhibit H);
- Cricket Budget (Exhibit I),
- Description of New Leap Common Stock and Related Risk
Factors, New Cricket Common Stock, New License Holding
Company Common Stock, New Property Holding Company
Common Stock and New Other Subsidiary Common Stock
(Exhibit J);
- Description of New Senior Notes and Related Risk Factors
(Exhibit K);
- Schedule of Litigation Claims (Exhibit L);
- Valuation of Reorganized Leap from UBS Securities LLC
(Exhibit M);
- Reconciliation of Total Liabilities Reported in Leap's
Petition, Form 10-Q and Schedules (Exhibit N); and
- Charts depicting Pre- and Post-Reorganization Corporate
Structure of the Debtors (Exhibit O).
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If you did not receive a copy of the Exhibits to the
Disclosure Statement, you may obtain the Exhibits by logging on to the Debtors'
website for the Chapter 11 Cases, www.leapreorganization.com, or by contacting
the Debtors' counsel (IN WRITING) as follows: Robert A. Klyman, Esq., Latham &
Watkins LLP, 633 W. Fifth St., Suite 4000, Los Angeles, California 90071; (213)
891-8763 (facsimile).
In addition, a Ballot for the acceptance or rejection of the
Plan is enclosed with the Disclosure Statement submitted to the holders of
Claims and Interests that the Debtors believe are entitled to vote to accept or
reject the Plan. You also may obtain a Ballot by logging on to the Debtors'
website, www.leapreorganization.com, or by contacting the Voting Agent,
Poorman-Douglas at:
If by U.S. Mail:
Poorman-Douglas Corporation
P.O. Box 4390
Portland, Oregon 97208-4390
Tel: (503) 350-5800
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc.,
Cricket Communications Inc. and
Affiliated Entities Claims Agent
If by Overnight or Hand Delivery:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (503) 350-5800
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc.,
Cricket Communications Inc. and
Affiliated Entities Claims Agent
On [_________], 2003, after notice and a hearing, the Court
entered the Disclosure Statement Order approving this Disclosure Statement as
containing adequate information of a kind and in sufficient detail to enable
hypothetical, reasonable investors typical of Holders of Claims against and
Interests in the Debtors to make an informed judgment as to whether to accept or
reject the Plan. Approval of the Disclosure Statement does not constitute a
determination by the Court as to the fairness or merits of the Plan.
The Disclosure Statement Order sets forth in detail the
deadlines, procedures and/or instructions for, inter alia, (a) voting to accept
or reject the Plan, (b) filing objections to Confirmation of the Plan, (c) the
Record Date, and (d) the applicable standards for tabulating votes. In addition,
detailed voting instructions accompany each Ballot. Each holder of a Claim or
Interest entitled to vote on the Plan should read the Disclosure Statement, the
Plan, the Disclosure Statement Order and the instructions accompanying the
Ballots in their entirety before voting on the Plan.
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II. OVERVIEW OF THE PLAN
The following table briefly summarizes the classification and
treatment of Claims and Interests under the Plan.(3)
The following is a designation of the Classes of Claims and
Interests under the Plan. In accordance with section 1123(a)(1) of the
Bankruptcy Code, Administrative Claims and Priority Tax Claims have not been
classified and are excluded from the following Classes. A Claim or Interest is
classified in a particular Class only to the extent that the Claim or Interest
qualifies within the description of that Class, and is classified in another
Class or Classes to the extent that any remainder of the Claim or Interest
qualifies within the description of such other Class or Classes. A Claim or
Interest is classified in a particular Class only to the extent that the Claim
or Interest is an Allowed Claim or Allowed Interest in that Class and has not
been paid, released or otherwise satisfied before the Effective Date; a Claim or
Interest which is not an Allowed Claim or Allowed Interest is not in any Class.
A Disputed Claim or Disputed Interest, to the extent that it subsequently
becomes an Allowed Claim or Allowed Interest, shall be included in the Class for
which it would have qualified had it not been disputed. Notwithstanding anything
to the contrary contained in the Plan, no distribution shall be made on account
of any Claim or Interest which is not an Allowed Claim or an Allowed Interest.
Unless otherwise specified herein, each Debtor shall assume responsibility for
paying, satisfying or otherwise discharging all Allowed Claims against it and
shall not be responsible for paying, satisfying or otherwise discharging any
Claim against any other Debtor.
CLAIMS AGAINST AND INTERESTS IN LEAP
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ------------------------ ------------------------------------------------ -----------
- - Administrative Claims Paid in full in Cash by Leap on the 100%
Effective Date or as soon as practicable
thereafter (unless the Holder of a
particular Claim and Leap agree to less
favorable treatment), or in accordance
with the terms and conditions of
transactions or agreements relating to
obligations incurred in the ordinary
course of business during the pendency of
the Chapter 11 Cases.
- - Priority Tax Claims Paid in full in Cash by Leap on the Effective 100%
Date or as soon as practicable thereafter.
SECURED CLAIMS:
1A GLH Claim Impaired; on the Effective Date or as soon as 100%
practicable thereafter, GLH shall receive the
GLH Collateral.
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(3) As this table merely provides a summary of the classification and
treatment of Claims and Interests under the Plan, reference should be made
to the entire Disclosure Statement and the Plan for a complete description
of the classification and treatment of Claims and Interests.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ------------------------ ------------------------------------------------ -----------
1B 12 1/2% Senior Secured Unimpaired; on the Initial Distribution Date or 100%
Claim as soon as practicable thereafter, each Holder
of an Allowed 12 1/2% Senior Secured
Claim shall receive, on a Pro Rata basis,
the 12 1/2% Senior Secured Claim
Distribution (approximately $200,000
remaining in a pledged account).
1C Old Vendor Debt Claim Impaired; on the Initial Distribution Date, 30-37%
each Holder of an Allowed Old Vendor Debt Claim
shall receive in full satisfaction, settlement,
release and discharge of and in exchange for
its Claim against Leap and its Estate, the
benefit of the Intercompany Releases, and on
the Effective Date or as soon as practicable
thereafter, on a Pro Rata basis, the Old Vendor
Debt Distribution.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ------------------------ ------------------------------------------------ -----------
2A et seq. Other Secured Claims Unimpaired if paid in full in Cash or 100%
Reinstated on the Effective Date or as soon as
practicable thereafter; Impaired if Holder of
Allowed Class 2A et seq. Claim receives
alternative treatment. Each Holder of an
Allowed Class 2A et seq. Claim shall, in the
discretion of the Debtor with the consent of
the Informal Vendor Debt Committee, receive any
one or a combination of any of the following:
(i) Cash in an amount equal to such Allowed
Class 2A et seq. Claim; (ii) deferred Cash
payments totaling at least the Allowed amount
of such Allowed Class 2A et seq. Claim, of a
value, as of the Effective Date, of at least
the value of such Holder's interest in the
Collateral securing the Allowed Class 2A et
seq. Claim; (iii) the Collateral securing such
Holder's Allowed Class 2A et seq. Claim;
(iv) payments or Liens amounting to the
indubitable equivalent of the value of such
Holder's interest in the Collateral securing
the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Allowed Class 2A et
seq. Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed upon
in writing. The Debtor will make the foregoing
election and provide notice of such election to
the applicable Holder of an Allowed Class 2A et
seq. Claim no later than 14 days prior to the
Voting Deadline. To the extent the Debtor
elects clause (i), (ii), (iv), (v) or (vi)
above, any liability associated with such
treatment shall be satisfied with funds from
Cricket.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ------------------------ ------------------------------------------------ -----------
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by Leap on or before 100%
the later of (i) the Effective Date or as soon
as practicable thereafter, (ii) the date such
Claim becomes an Allowed Claim and (iii) the
date that such Claim would be paid in
accordance with the terms and conditions of any
agreements or understandings relating thereto
between Leap and the Holder of such Claim.
4 General Unsecured Claims Impaired; each Holder of an Allowed Class 4 14%
Claim to receive a Pro Rata distribution of
beneficial interests in the Leap Creditor
Trust.
4A Subordinated General Impaired; each Holder of an Allowed Class 4A 0%
Unsecured Claims of MCG Claim to receive no Cash or property on account
PCS, Inc. of such Claim.
5 Intercompany Claims Impaired; each Holder of an Allowed Class 5 0%
Claim to receive the Intercompany Release
as of the Initial Distribution Date.
6 Old Leap Common Stock Impaired; each Holder of an Allowed Class 6 0%
and Securities Claims Interest to receive no Cash or property on
against Leap account of such Interest.
7 Old Stock Rights in Leap Impaired; each Holder of an Allowed Class 7 0%
and All Claims Arising Interest to receive no Cash or property on
Out of Such Old Stock account of such Interest.
Rights
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CLAIMS AGAINST AND INTERESTS IN CCH
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ------------------------ ------------------------------------------------ -----------
- - Administrative Claims Paid in full in Cash by CCH on the 100%
Effective Date or as soon as practicable
thereafter (unless the Holder of a
particular Claim and CCH agree to some
other treatment), or in accordance with
the terms and conditions of transactions
or agreements relating to obligations
incurred in the ordinary course of
business during the pendency of the
Chapter 11 Cases.
- - Priority Tax Claims Paid in full in Cash by CCH on the Effective 100%
Date or as soon as practicable thereafter.
SECURED CLAIMS:
1A Old Vendor Debt Claim Impaired; on the Effective Date or as soon as 30-37%
practicable thereafter, each Holder of an
Allowed Old Vendor Debt Claim shall receive, on
a Pro Rata basis, the Old Vendor Debt
Distribution.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ------------------------ ------------------------------------------------ -----------
2A et seq. Other Secured Claims Unimpaired if paid in full in Cash or 100%
Reinstated on the Effective Date or as soon as
practicable thereafter; Impaired if Holder of
Allowed Class 2A et seq. Claim receives
alternative treatment. Each Holder of an
Allowed Class 2A et seq. Claim shall, in the
discretion of the Debtor with the consent of
the Informal Vendor Debt Committee, receive any
one or a combination of any of the following:
(i) Cash in an amount equal to such Allowed
Class 2A et seq. Claim; (ii) deferred Cash
payments totaling at least the Allowed amount
of such Allowed Class 2A et seq. Claim, of a
value, as of the Effective Date, of at least
the value of such Holder's interest in the
Collateral securing the Allowed Class 2A et
seq. Claim; (iii) the Collateral securing such
Holder's Allowed Class 2A et seq. Claim;
(iv) payments or Liens amounting to the
indubitable equivalent of the value of such
Holder's interest in the Collateral securing
the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed upon
in writing. The Debtor will make the foregoing
election and provide notice of such election to
the applicable Holder of an Allowed Class 2A et
seq. Claim no later than 14 days prior to the
Voting Deadline. To the extent the Debtor
elects clause (i), (ii), (iv), (v) or (vi)
above, any liability associated with such
treatment shall be satisfied with funds from
Cricket.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ------------------------ ------------------------------------------------ -----------
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by CCH on or before 100%
the later of (i) the Effective Date or as soon
as practicable thereafter, (ii) the date such
Claim becomes an Allowed Claim and (iii) the
date that such Claim would be paid in
accordance with the terms and conditions of any
agreements or understandings relating thereto
between CCH and the Holder of such Claim.
4 General Unsecured Claims Impaired; each Holder of an Allowed Class 4 0%
Claim shall receive no Cash or property on
account of such Claim.
5 Intercompany Claims Impaired; each Holder of an Allowed Class 5 0%
Claim to receive the Intercompany Release
as of the Initial Distribution Date.
6 Old CCH Common Stock and Impaired; on the Effective Date, CCH shall be 0%
Securities Claims merged into Cricket.
against CCH
7 Old Stock Rights in CCH Impaired; each Holder of an Allowed Class 7 0%
and All Claims Arising Interest shall receive no Cash or property on
Out of Such Old Stock account of such Interest.
Rights
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CLAIMS AGAINST AND INTERESTS IN CRICKET
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ------------------------ ------------------------------------------------- -----------
- - Administrative Claims Paid in full in Cash by Reorganized 100%
Cricket on the Effective Date or as soon
as practicable thereafter (unless the
Holder of a particular Claim and Cricket
agree to some other treatment), or in
accordance with the terms and conditions
of transactions or agreements relating to
obligations incurred in the ordinary
course of business during the pendency of
the Chapter 11 Case.
- - Priority Tax Claims At the option of Reorganized Cricket either 100%
(i) Reinstated, (ii) paid in full in Cash by
Reorganized Cricket on the Effective Date or as
soon as practicable thereafter, or (iii) paid
over a six-year period from the date of
assessment, as provided in Section 1129(a)(9)(C)
of the Bankruptcy Code with interest payable at
a rate of 8 1/4% per annum or as otherwise
established by the Court.
SECURED CLAIMS:
1A Old Vendor Debt Claims Impaired; on the Effective Date or as soon as 30-37%
practicable thereafter, each Holder of an
Allowed Old Vendor Debt Claim shall receive, on
a Pro Rata basis, the Old Vendor Debt
Distribution.
2A et seq. Other Secured Claims Unimpaired if paid in full in Cash or Reinstated 100%
on the Effective Date or as soon as practicable
thereafter; Impaired if Holder of Allowed
Class 2A et seq. Claim receives alternative
treatment. Each Holder of an Allowed Class 2A
et seq. Claim shall, in the discretion of the
Debtor with the consent of the Informal Vendor
Debt Committee, receive any one or a combination
of any of the following: (i) Cash in an amount
equal to such Allowed Class 2A et seq. Claim;
(ii) deferred Cash payments totaling at least
the Allowed amount of such Allowed Class 2A et
seq. Claim, of a value, as of the Effective
Date, of at least the value of such Holder's
interest in the Collateral securing the Allowed
Class 2A et seq. Claim; (iii) the
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ------------------------ ------------------------------------------------- -----------
Collateral securing such Holder's Allowed Class
2A et seq. Claim; (iv) payments or Liens
amounting to the indubitable equivalent of the
value of such Holder's interest in the Collateral
securing the Allowed Class 2A et seq. Claim; (v)
Reinstatement of such Class 2A et seq. Claim; or
(vi) such other treatment as the Debtor and such
Holder shall have agreed upon in writing. The
Debtor will make the foregoing election and
provide notice of such election to the applicable
Holder of an Allowed Class 2A et seq. Claim no
later than 14 days prior to the Voting Deadline.
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by Reorganized Cricket 100%
on or before the later of (i) the Effective Date
or as soon as practicable thereafter, (ii) the
date such Claim becomes an Allowed Claim and
(iii) the date that such Claim would be paid in
accordance with the terms and conditions of any
agreements or understandings relating thereto
between Cricket and the Holder of such Claim.
4 General Unsecured Claims Impaired; each Holder of an Allowed Class 4 0%
Claim shall receive on a Pro Rata basis its
share of the Cricket General Unsecured Creditor
Distribution.
5 Intercompany Claims Impaired; each Holder of an Allowed Class 5 0%
Claim shall receive the Intercompany
Release as of the Initial Distribution
Date.
6 Old Common Stock of Impaired; each Holder of an Allowed Class 6 0%
Cricket and Securities Interest shall receive no Cash or property on
Claims against Cricket account of such Interest.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
7 Old Stock Rights in Impaired; each Holder of an Allowed Class 7 0%
Cricket and All Claims Interest shall receive no Cash or property
Arising Out of Such Old on account of such Interest.
Stock Rights
CLAIMS AGAINST AND INTERESTS IN LICENSE HOLDING COMPANIES (APPLICABLE TO EACH
LICENSE HOLDING COMPANY)
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
- - Administrative Paid in full in Cash by the applicable 100%
Claims Reorganized License Holding Company on
the Effective Date or as soon as
practicable thereafter (unless the Holder
of a particular Claim and the applicable
License Holding Company agree to some other
treatment), or in accordance with the terms and
conditions of transactions or agreements
relating to obligations incurred in the
ordinary course of business during the pendency
of the Chapter 11 Cases.
- - Priority Tax Claims Paid in full in Cash by the applicable 100%
Reorganized License Holding Company on the
Effective Date or as soon as practicable
thereafter.
SECURED CLAIMS:
1A Old Vendor Debt Claim Impaired; on the Effective Date or as soon 30-37%
as practicable thereafter, each Holder of
an Allowed Old Vendor Debt Claim shall
receive, on a Pro Rata basis, the Old
Vendor Debt Distribution.
1B FCC Claims On the Effective Date or as soon thereafter as 100%
practicable, the Holder of the FCC Claims shall
be Reinstated. The Holder of the FCC Claims
will be deemed Unimpaired.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
2A et Other Secured Unimpaired if paid in full in Cash or 100%
seq. Claims Reinstated on the Effective Date or as soon as
practicable thereafter; Impaired if Holder of
Allowed Class 2A et seq. Claim receives
alternative treatment. Each Holder of an
Allowed Class 2A et seq. Claim shall, in the
discretion of the Debtor with the consent of
the Informal Vendor Debt Committee, receive any
one or a combination of any of the following:
(i) Cash in an amount equal to such Allowed
Class 2A et seq. Claim; (ii) deferred Cash
payments totaling at least the Allowed amount
of such Allowed Class 2A et seq. Claim, of a
value, as of the Effective Date, of at least
the value of such Holder's interest in the
Collateral securing the Allowed Class 2A et
seq. Claim; (iii) the Collateral securing such
Holder's Allowed Class 2A et seq. Claim;
(iv) payments or Liens amounting to the
indubitable equivalent of the value of such
Holder's interest in the Collateral securing
the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed upon
in writing. The Debtor will make the foregoing
election and provide notice of such election to
the applicable Holder of an Allowed Class 2A et
seq. Claim no later than 14 days prior to the
Voting Deadline. To the extent the Debtor
elects clause (i), (ii), (iv), (v) or (vi)
above, any liability associated with such
treatment shall be satisfied with funds from
Cricket.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by the applicable 100%
Reorganized License Holding Company on or
before the later of (i) the Effective Date or
as soon as practicable thereafter, (ii) the
date such Claim becomes an Allowed Claim and
(iii) the date that such Claim would be paid in
accordance with the terms and conditions of any
agreements or understandings relating thereto
between the applicable License Holding Company
and the Holder of such Claim.
4 General Unsecured Impaired; each Holder of an Allowed Class 4 0%
Claims Claim to receive no Cash or property on account
of such Claims.
5 Intercompany Impaired; each Holder of an Allowed Class 5 0%
Claims Claim to receive the Intercompany Release as of
the Initial Distribution Date.
6 Old License Holding Impaired; each Holder of an Allowed Class 6 0%
Company Common Stock Interest shall retain no Cash or property on
and Securities Claims account of such Interest.
Against License
Holding Company
7 Old Stock Rights in Impaired; each Holder of an Allowed Class 7 0%
License Holding Company Interest shall receive no Cash or property on
and All Claims Arising account of such Interest.
Out of Such Old Stock
Rights
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CLAIMS AGAINST AND INTERESTS IN PROPERTY HOLDING COMPANIES (APPLICABLE TO EACH
PROPERTY HOLDING COMPANY)
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
- - Administrative Paid in full in Cash by the applicable 100%
Claims Reorganized Property Holding Company on
the Effective Date or as soon as
practicable thereafter (unless the Holder
of a particular Claim and the applicable
Property Holding Company agree to some
other treatment), or in accordance with
the terms and conditions of transactions
or agreements relating to obligations
incurred in the ordinary course of
business during the pendency of the
Chapter 11 Cases.
- - Priority Tax Claims Paid in full in Cash by the applicable 100%
Reorganized Property Holding Company on the
Effective Date or as soon as practicable
thereafter.
SECURED CLAIMS:
1A Old Vendor Debt Claims Impaired; on the Effective Date or as soon as 30-37%
practicable thereafter, each Holder of an
Allowed Old Vendor Debt Claim shall receive, on
a Pro Rata basis, the Old Vendor Debt
Distribution.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
2A et Other Secured Unimpaired if paid in full in Cash or 100%
seq. Claims Reinstated on the Effective Date or as soon as
practicable thereafter; Impaired if Holder of
Allowed Class 2A et seq. Claim receives
alternative treatment. Each Holder of an
Allowed Class 2A et seq. Claim shall, in the
discretion of the Debtor with the consent of
the Informal Vendor Debt Committee, receive any
one or a combination of any of the following:
(i) Cash in an amount equal to such Allowed
Class 2A et seq. Claim; (ii) deferred Cash
payments totaling at least the Allowed amount
of such Allowed Class 2A et seq. Claim, of a
value, as of the Effective Date, of at least
the value of such Holder's interest in the
Collateral securing the Allowed Class 2A et
seq. Claim; (iii) the Collateral securing such
Holder's Allowed Class 2A et seq. Claim;
(iv) payments or Liens amounting to the
indubitable equivalent of the value of such
Holder's interest in the Collateral securing
the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed upon
in writing. The Debtor will make the foregoing
election and provide notice of such election to
the applicable Holder of an Allowed Class 2A et
seq. Claim no later than 14 days prior to the
Voting Deadline.
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by the applicable 100%
Reorganized Property Holding Company on or
before the later of (i) the Effective Date or
as soon as practicable thereafter, (ii) the
date such Claim becomes an Allowed Claim and
(iii) the date that such Claim would be paid in
accordance with the terms and conditions of any
agreements or understandings relating thereto
between the applicable Property Holding Company
and the Holder of such Claim.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
4 General Unsecured Impaired; each Holder of an Allowed Class 4 0%
Claims Claim to receive no Cash or property on account
of such Claim.
5 Intercompany Impaired; each Holder of an Allowed Class 5 0%
Claims Claim to receive the Intercompany Release as of
the Initial Distribution Date.
6 Old Property Holding Impaired; each Holder of an Allowed Class 6 0%
Company Common Stock Interest shall receive no Cash or property on
and Securities Claims account of such Interest.
Against Property
Holding Company
7 Old Stock Rights in Impaired; each Holder of an Allowed Class 7 0%
Property Holding Company Interest shall receive no Cash or property on
and All Claims Arising account of such Interest.
Out of Such Old Stock
Rights
CLAIMS AGAINST AND INTERESTS IN OTHER SUBSIDIARIES (APPLICABLE TO EACH OTHER
SUBSIDIARY)
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
- - Administrative Paid in full in Cash by the applicable 100%
Claims Reorganized Other Subsidiary on the
Effective Date or as soon as practicable
thereafter (unless the Holder of a
particular Claim and the applicable Other
Subsidiary agree to some other
treatment), or in accordance with the
terms and conditions of transactions or
agreements relating to obligations
incurred in the ordinary course of
business during the pendency of the
Chapter 11 Cases.
- - Priority Tax Paid in full in Cash by the applicable 100%
Claims Reorganized Other Subsidiary on the Effective
Date or as soon as practicable thereafter.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
SECURED CLAIMS:
1A et Other Secured Unimpaired if paid in full in Cash or 100%
seq. Claims Reinstated on the Effective Date or as soon as
practicable thereafter; Impaired if Holder of
Allowed Class 1A et seq. Claim receives
alternative treatment. Each Holder of an
Allowed Class 1A et seq. Claim shall, in the
discretion of the Debtor with the consent of
the Informal Vendor Debt Committee, receive any
one or a combination of any of the following:
(i) Cash in an amount equal to such Allowed
Class 1A et seq. Claim; (ii) deferred Cash
payments totaling at least the Allowed amount
of such Allowed Class 1A et seq. Claim, of a
value, as of the Effective Date, of at least
the value of such Holder's interest in the
Collateral securing the Allowed Class 1A et
seq. Claim; (iii) the Collateral securing such
Holder's Allowed Class 1A et seq. Claim;
(iv) payments or Liens amounting to the
indubitable equivalent of the value of such
Holder's interest in the Collateral securing
the Allowed Class 1A et seq. Claim;
(v) Reinstatement of such Class 1A et seq.
Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed upon
in writing. The Debtor will make the foregoing
election and provide notice of such election to
the applicable Holder of an Allowed Class 1A et
seq. Claim no later than 14 days prior to the
Voting Deadline. To the extent the Debtor
elects clause (i), (ii), (iv), (v) or (vi)
above, any liability associated with such
treatment shall be satisfied with funds from
Cricket.
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TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------------- ----------------------------------------------- ---------
UNSECURED CLAIMS:
2 Priority Claims Unimpaired; paid in full by the applicable 100%
Reorganized Other Subsidiary on or before the
later of (i) the Effective Date or as soon as
practicable thereafter, (ii) the date such
Claim becomes an Allowed Claim and (iii) the
date that such Claim would be paid in
accordance with the terms and conditions of any
agreements or understandings relating thereto
between the applicable Other Subsidiary and the
Holder of such Claim.
3 General Unsecured Impaired; each Holder of an Allowed Class 3 0%
Claims Claim to receive no Cash or property on account
of such Claims.
4 Intercompany Impaired; each Holder of an Allowed Class 4 0%
Claims Claim to receive the Intercompany Release as of
the Initial Distribution Date.
5 Old Other Subsidiary Impaired; each Holder of an Allowed Class 5 0%
Common Stock and Interest shall receive no Cash or property on
Securities Claims account of such Interest.
Against Other
Subsidiary
6 Old Stock Rights in Impaired; each Holder of an Allowed Class 6 0%
Other Subsidiary and All Interest shall receive no Cash or property on
Claims Arising Out of account of such Interest.
Such Old Stock Rights
A. HOLDERS OF CLAIMS AND INTERESTS ENTITLED TO VOTE
Pursuant to the provisions of the Bankruptcy Code, only
holders of Allowed Claims and Allowed Interests in Classes of Claims and
Interests, respectively, that are Impaired are entitled to vote to accept or
reject a proposed chapter 11 plan. Holders of Claims and Interests in classes
that are Unimpaired under a chapter 11 plan are deemed to accept the Plan and
are not entitled to vote. Holders of Claims and Interests in classes that will
receive no Cash or property under the Plan are deemed to have rejected the Plan
and are not entitled to vote.
1. LEAP
With respect to Leap, Class 1B (12 1/2% Senior Secured Claim
against Leap), certain of the Class 2A et seq. Claims (Other Secured Claims
against Leap) and Class 3 (Priority Claims) are Unimpaired and are presumed to
have accepted the Plan.
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With respect to Leap, Class 1A (GLH Claim against Leap), Class
1C (Old Vendor Debt Claims), certain of the Class 2A et seq. Claims (Other
Secured Claims against Leap), Class 4 (General Unsecured Claims against Leap),
and Class 5 (Intercompany Claims against Leap) are Impaired and will receive
distributions under the Plan. To the extent Claims and Interests in such classes
are Allowed Claims and Allowed Interests, the Holders of such Claims and
Interests are entitled to vote to accept or reject the Plan.
With respect to Leap, Class 4A (Subordinated General Unsecured
Claims of MCG PCS, Inc. against Leap), Class 6 (Old Leap Common Stock and
Securities Claims against Leap) and Class 7 (Old Stock Rights in Leap and All
Claims Arising Out of Such Old Stock Rights) are Impaired, but the votes of the
Class 4A Claim and the Class 6 and Class 7 Interests are not being solicited.
Holders of the Class 4A Claim and the Class 6 and 7 Interests are not receiving
any distributions under the Plan and therefore are deemed to have rejected the
Plan.
2. CCH
With respect to CCH, certain of the Class 2A et seq. Claims
(Other Secured Claims against CCH), and Class 3 (Priority Claims) are Unimpaired
and are presumed to have accepted the Plan.
With respect to CCH, Class 1A (Old Vendor Debt Claims),
certain of the Class 2A et seq. Claims (Other Secured Claims against CCH), and
Class 5 (Intercompany Claims against CCH) are Impaired and will receive
distributions under the Plan. To the extent Claims in such classes are Allowed
Claims, the Holders of such Claims are entitled to vote to accept or reject the
Plan.
With respect to CCH, Class 4 (General Unsecured Claims against
CCH), Class 6 (Old CCH Common Stock and Securities Claims against CCH) and Class
7 (Old Stock Rights in CCH and All Claims Arising Out of Such Old Stock Rights)
are not being solicited. Holders of Class 4 Claims and Class 6 and 7 Interests
are not receiving any distributions under the Plan and therefore are deemed to
have rejected the Plan.
3. CRICKET
With respect to Cricket, certain of the Class 2A et seq.
Claims (Other Secured Claims against Cricket) and Class 3 (Priority Claims) are
Unimpaired and are presumed to have accepted the Plan.
With respect to Cricket, Class 1A (Old Vendor Debt Claims),
certain of the Class 2A et seq. Claims (Other Secured Claims against Cricket),
Class 4 (General Unsecured Claims against Cricket) and Class 5 (Intercompany
Claims) are Impaired and will receive distributions under the Plan. To the
extent Claims in such classes are Allowed Claims, the Holders of such Claims are
entitled to vote to accept or reject the Plan.
With respect to Cricket, Class 6 (Old Cricket Common Stock and
Securities Claims against Cricket) and Class 7 (Old Stock Rights in Cricket and
All Claims Arising Out of Such Old Stock Rights) are Impaired, but the votes of
Classes 6 and 7 are not being solicited. Holders of Class 6 and 7 Interests are
not receiving any distributions under the Plan and therefore are deemed to have
rejected the Plan.
4. LICENSE HOLDING COMPANIES
With respect to License Holding Companies, Class 1B (FCC
Claims), certain of the Class 2A et seq. Claims (Other Secured Claims against
License Holding Companies) and Class 3 (Priority Claims) are Unimpaired and are
presumed to have accepted the Plan.
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With respect to License Holding Companies, Class 1A (Old
Vendor Debt Claims), certain of the Class 2A et seq. Claims (Other Secured
Claims against License Holding Companies) and Class 5 (Intercompany Claims) are
Impaired and will receive distributions under the Plan. To the extent Claims in
such classes are Allowed Claims, the Holders of such Claims are entitled to vote
to accept or reject the Plan.
With respect to License Holding Companies, Class 4 (General
Unsecured Claims), Class 6 (Old License Holding Company Common Stock and
Securities Claims Against License Holding Company) and Class 7 (Old Stock Rights
in License Holding Company and All Claims Arising Out of Such Old Stock Rights)
are Impaired, but the votes of Classes 4, 6 and 7 are not being solicited.
Holders of Class 4 Claims and Class 6 and 7 Interests are not receiving any
distributions under the Plan and therefore are deemed to have rejected the Plan.
5. PROPERTY HOLDING COMPANIES
With respect to Property Holding Companies, certain of the
Class 2A et seq. Claims (Other Secured Claims against Property Holding
Companies) and Class 3 (Priority Claims) are Unimpaired and are presumed to have
accepted the Plan.
With respect to Property Holding Companies, Class 1A (Old
Vendor Debt Claims), certain of the Class 2A et seq. Claims (Other Secured
Claims against Property Holding Companies) and Class 5 (Intercompany Claims) are
Impaired and will receive distributions under the Plan. To the extent Claims in
such classes are Allowed Claims, the Holders of such Claims are entitled to vote
to accept or reject the Plan.
With respect to Property Holding Companies, Class 4 (General
Unsecured Claims), Class 6 (Old Property Holding Company Common Stock and
Securities Claims) and Class 7 (Old Stock Rights in Property Holding Company and
All Claims Arising Out of Such Old Stock Rights) are Impaired, but the votes of
Classes 4, 6 and 7 are not being solicited. Holders of Class 4 Claims and Class
6 and 7 Interests are not receiving any distributions under the Plan and
therefore are deemed to have rejected the Plan.
6. OTHER SUBSIDIARIES
With respect to Other Subsidiaries, certain of the Class 1A et
seq. Claims (Other Secured Claims against Other Subsidiaries) and Class 2
(Priority Claims) are Unimpaired and are presumed to have accepted the Plan.
With respect to Other Subsidiaries, certain of the Class 1A et
seq. Claims (Other Secured Claims against Other Subsidiaries) and Class 4
(Intercompany Claims) are Impaired and will receive distributions under the
Plan. To the extent Claims in such class are Allowed Claims, the Holders of such
Claims are entitled to vote to accept or reject the Plan.
With respect to Other Subsidiaries, Class 3 (General Unsecured
Claims), Class 5 (Old Other Subsidiary Common Stock and Securities Claims
Against Other Subsidiary) and Class 6 (Old Stock Rights in Other Subsidiary and
All Claims Arising Out of Such Old Stock Rights) are Impaired, but the votes of
Classes 5 and 6 are not being solicited. Holders of Class 3 Claims and Class 3,
5 and 6 Interests are not receiving any distributions under the Plan and
therefore are deemed to have rejected the Plan.
Generally, for the Plan to be confirmed by the Court with
respect to each Debtor, two-thirds in dollar amount, and one-half in number of
the Allowed Claims, or with respect to the Allowed Interests two-thirds of the
Interests, in each Impaired Class of Claims, or Interests, that actually are
voted must vote to accept the Plan. The Plan may be confirmed under certain
circumstances, despite dissent by one or more Impaired Classes, and the Debtors
reserve the
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right to seek such non-consensual confirmation of the Plan. However, a Holder of
a Claim or Interest will be deemed to have rejected the Plan if such plan
provides that the Claims or Interests of such class do not entitle such Holders
to receive or retain any property under the Plan. For voting and distribution
purposes, the Plan contemplates separate classes for each of the Debtors.
Accordingly, the voting and other confirmation requirements of the Bankruptcy
Code must be satisfied for each Debtor.
If a Class of Claims or Interests rejects the Plan, the Plan
may be confirmed by the Court pursuant to Section 1129(b) of the Bankruptcy
Code. Section 1129(b) permits the confirmation of a plan of reorganization
notwithstanding the non-acceptance of the Plan by one or more impaired classes
of claims or interests, so long as the Court finds that the Plan does not
"discriminate unfairly" and is "fair and equitable" with respect to each
non-accepting class.
B. VOTING PROCEDURES
If you are entitled to vote to accept or reject the Plan, a
Ballot is enclosed for the purpose of voting on the Plan. If you are entitled to
vote Claims or Interests in more than one Class, you will receive a separate
Ballot for each such Class of Claims or Interests. Each Ballot has been coded to
reflect the Class of Claims and Interests it represents. Accordingly, in voting
to accept or reject the Plan, you must use only the coded Ballot or Ballots sent
to you with this Disclosure Statement. Please complete and sign your original
Ballot (copies, facsimiles and oral votes will not be accepted), and return it
to the Voting Agent at the address set forth on the Ballot.
TO BE COUNTED, YOUR COMPLETED BALLOT MUST BE RECEIVED BY THE
VOTING AGENT NO LATER THAN 4:00 P.M., PACIFIC TIME, ON [___________], 2003. ANY
EXECUTED BALLOT RECEIVED BY THE VOTING AGENT THAT DOES NOT INDICATE EITHER AN
ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE
OF THE PLAN.
Any Claim or Interest in an Impaired Class that otherwise is
entitled to vote on the Plan, and as to which an objection or request for
estimation is pending or that is Scheduled by the Debtors as unliquidated,
disputed or contingent, is not entitled to vote on the Plan unless the holder of
such Claim or Interest has obtained an order of the Court temporarily allowing
such Claim or Interest for the purpose of voting on the Plan.
Pursuant to the Disclosure Statement Order, the Court set
[________], 2003 as the record date for voting on the Plan and for receiving
distributions under the Plan. Accordingly, only holders of record as of
[________], 2003 that otherwise are entitled to vote under the Plan will receive
a Ballot and may vote on the Plan.
If you are the holder of a Claim or Interest entitled to vote
on the Plan, but did not receive a Ballot, received a damaged Ballot, or lost
your Ballot, or if you have any questions regarding the procedures for voting
your Claims or Interests, please contact the Voting Agent at:
If by U.S. Mail:
Poorman-Douglas Corporation
P.O. Box 4390
Portland, Oregon 97208-4390
Attn: Leap Wireless International, Inc.,
Cricket Communications, Inc. and Affiliated
Entities Claims Agent
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If by Overnight or Hand Delivery:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (503) 350-5800
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc.,
Cricket Communications, Inc. and Affiliated
Entities Claims Agent
C. CONFIRMATION HEARING
Pursuant to Section 1128 of the Bankruptcy Code, the
Confirmation Hearing has been scheduled for [________], 2003 at 8:30 a.m.,
Pacific Time, before the Hon. Louise DeCarl Adler in the United States
Bankruptcy Court for the Southern District of California, Jacob Weinberger U.S.
Courthouse, 325 West F Street, San Diego, California 92101. The Court may
adjourn the Confirmation Hearing from time to time without further notice except
for the announcement of the adjournment date made at the Confirmation Hearing or
at any subsequently adjourned Confirmation Hearing.
Objections to the Confirmation of the Plan must be Filed with
the Court and served upon the following parties so as to be received by such
parties before 4:00 p.m., Pacific Time, on [ ], 2003:
Latham & Watkins LLP Kramer Levin Naftalis & Frankel LLP
Attorneys for the Debtors Attorneys for the Official Committee
633 West Fifth Street, Suite 4000 919 Third Avenue
Los Angeles, California 90071 New York, New York 10022
Attn: Robert A. Klyman Attn: Robert T. Schmidt
Andrews & Kurth L.L.P. Office of the United States Trustee
Attorneys for Informal Vendor Debt 402 West Broadway, Suite 600
Committee San Diego, CA 92101
805 Third Avenue Attn: Tiffany L. Carroll
New York, New York 10022
Attn: Paul N. Silverstein
THE DEBTORS, THE INFORMAL VENDOR DEBT COMMITTEE AND THE
OFFICIAL COMMITTEE BELIEVE THAT THE PLAN WILL ENABLE THE DEBTORS TO SUCCESSFULLY
REORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11, AND THAT ACCEPTANCE OF
THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THEIR CREDITORS.
D. IDENTITY OF PERSON TO CONTACT FOR MORE INFORMATION REGARDING THE PLAN
Any interested party desiring more information about the Plan
should contact (IN WRITING) counsel to the Debtors, Robert A. Klyman, Latham &
Watkins LLP, 633 West Fifth Street, Suite 4000, Los Angeles, California, (213)
891-8763 (facsimile), or log on to the Debtors' website for the Chapter 11
Cases, www.leapreorganization.com.
E. DISCLAIMER
ALL HOLDERS OF CLAIMS AND INTERESTS AND OTHER PARTIES IN
INTEREST ARE ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE
ACCOMPANYING PLAN OF REORGANIZATION IN THEIR
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ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. PLAN SUMMARIES AND
STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE PLAN, OTHER EXHIBITS ANNEXED HERETO AND OTHER DOCUMENTS
REFERENCED AS FILED WITH THE COURT PRIOR TO OR CONCURRENT WITH THE FILING OF
THIS DISCLOSURE STATEMENT. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT
ARE MADE AS OF THE DATE HEREOF, AND THERE CAN BE NO ASSURANCE THAT THE
STATEMENTS CONTAINED HEREIN WILL BE CORRECT AT ANY TIME AFTER THE DATE HEREOF.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF THE BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF
BANKRUPTCY PROCEDURE. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
PERSONS OR ENTITIES TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING
SECURITIES OF LEAP SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN
LIGHT OF THE PURPOSES FOR WHICH THEY WERE PREPARED.
CERTAIN STATEMENTS CONTAINED HEREIN OR ATTACHED HERETO,
INCLUDING PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING STATEMENTS,
ARE BASED ON ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH
STATEMENTS WILL REFLECT ACTUAL OUTCOMES.
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED
SOLELY FOR PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN. NO PERSON OR ENTITY
MAY USE ANYTHING IN THIS DISCLOSURE STATEMENT FOR ANY OTHER PURPOSE. THE FACTUAL
INFORMATION CONTAINED HEREIN, INCLUDING THE DESCRIPTION OF THE DEBTORS, THEIR
BUSINESSES, AND EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES, HAS
BEEN OBTAINED FROM VARIOUS DOCUMENTS, AGREEMENTS AND OTHER WRITINGS RELATING TO
THE DEBTORS, AND FROM DISCUSSIONS WITH AND VARIOUS WRITINGS PREPARED BY THE
DEBTORS, THE INFORMAL VENDOR DEBT COMMITTEE, THE OFFICIAL COMMITTEE AND THEIR
RESPECTIVE LEGAL COUNSEL AND FINANCIAL ADVISORS.
THE TERMS OF THE PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY
WITH THE SUMMARIES HEREIN. ALL EXHIBITS HERETO ARE INCORPORATED INTO, AND ARE A
PART OF, THIS DISCLOSURE STATEMENT AS IF SET FORTH IN FULL HEREIN.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER
ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR
BE CONSTRUED AS AN ADMISSION OF ANY FACT, LIABILITY, STIPULATION OR WAIVER BUT
RATHER AS A STATEMENT MADE WITHOUT PREJUDICE SOLELY FOR SETTLEMENT PURPOSES,
WITH FULL RESERVATION OF RIGHTS. THIS DISCLOSURE STATEMENT SHALL NOT BE USED FOR
ANY LITIGATION PURPOSE WHATSOEVER, AND SHALL NOT BE ADMISSIBLE IN ANY PROCEEDING
INVOLVING THE DEBTORS, THE INFORMAL VENDOR DEBT COMMITTEE, THE OFFICIAL
COMMITTEE OR ANY OTHER PARTY IN INTEREST, NOR SHALL IT BE CONSTRUED TO BE
CONCLUSIVE ADVICE ON THE TAX, SECURITIES LAW OR OTHER LEGAL EFFECTS OF THE PLAN
AS TO HOLDERS OF CLAIMS AGAINST OR INTERESTS IN THE DEBTORS.
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TABLE OF CONTENTS
PAGE
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I. INTRODUCTION..................................................................................... i
II. OVERVIEW OF THE PLAN............................................................................. viii
A. HOLDERS OF CLAIMS AND INTERESTS ENTITLED TO VOTE........................................ xxiv
B. VOTING PROCEDURES....................................................................... xxvii
C. CONFIRMATION HEARING.................................................................... xxviii
D. IDENTITY OF PERSON TO CONTACT FOR MORE INFORMATION REGARDING THE PLAN................... xxviii
E. DISCLAIMER.............................................................................. xxviii
SECTION I. OVERVIEW OF CHAPTER 11......................................................................... 1
SECTION II. DESCRIPTION OF THE DEBTORS' BUSINESS.......................................................... 1
SECTION III. SIGNIFICANT PREPETITION TRANSACTIONS......................................................... 3
A. LEAP WIRELESS INTERNATIONAL, INC........................................................ 3
B. CRICKET COMMUNICATIONS, INC............................................................. 8
C. OTHERS.................................................................................. 10
SECTION IV. KEY EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES................................ 11
A. PRE-PETITION PLAN NEGOTIATIONS.......................................................... 11
SECTION V. THE CHAPTER 11 CASES........................................................................... 12
A. DISCLOSURE STATEMENT AND PLAN CONFIRMATION HEARINGS..................................... 12
B. SIGNIFICANT MOTIONS DURING THE CHAPTER 11 CASES......................................... 12
C. DEADLINE TO FILE PROOF OF CLAIMS AND INTERESTS.......................................... 14
D. ASSUMPTION AND REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.................... 15
E. PARTIES IN INTEREST AND PROFESSIONALS................................................... 16
SECTION VI. THE FUTURE BUSINESS OF REORGANIZED DEBTORS.................................................... 17
A. CAPITALIZATION AND STRUCTURE OF REORGANIZED DEBTORS..................................... 17
B. CERTAIN INFORMATION REGARDING THE VALUES OF FCC WIRELESS LICENSES....................... 19
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C. COMPOSITION OF MANAGEMENT AND THE DIRECTORS OF REORGANIZED DEBTORS......................... 22
D. ISSUANCE OF NEW SENIOR NOTES AND NEW LEAP COMMON STOCK..................................... 24
SECTION VII. SUMMARY OF THE PLAN OF REORGANIZATION........................................................... 24
A. INTRODUCTION............................................................................... 24
B. CLASSIFICATION AND TREATMENT OF ADMINISTRATIVE CLAIMS, CLAIMS
AND INTERESTS UNDER THE PLAN............................................................... 25
C. INDEBTEDNESS OF REORGANIZED LICENSE HOLDING COMPANIES AND REORGANIZED CRICKET.............. 36
D. DISTRIBUTIONS UNDER THE PLAN............................................................... 37
E. GENERAL INFORMATION CONCERNING THE PLAN.................................................... 43
F. ADDITIONAL INFORMATION REGARDING TREATMENT OF CERTAIN CLAIMS............................... 45
G. ALLOCATION OF CONSIDERATION................................................................ 46
H. CANCELLATION OF OLD LEAP NOTES; CERTAIN PROVISIONS IN RESPECT
OF THE OLD LEAP NOTES, AND THE OLD INDENTURE TRUSTEE....................................... 46
I. CANCELLATION OF OLD LEAP COMMON STOCK AND OTHER OLD SECURITIES............................. 47
J. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS................................................. 47
K. CERTAIN CORPORATE GOVERNANCE MATTERS....................................................... 48
L. EFFECT OF CONFIRMATION OF THE PLAN......................................................... 48
M. RETENTION OF JURISDICTION.................................................................. 50
N. MISCELLANEOUS PROVISIONS................................................................... 51
SECTION VIII. PROJECTIONS.................................................................................... 54
SECTION IX. CONFIRMATION PROCEDURE........................................................................... 55
A. SOLICITATION OF VOTES...................................................................... 55
B. THE CONFIRMATION HEARING................................................................... 59
C. CONFIRMATION............................................................................... 59
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SECTION X. CONFIRMATION AND EFFECTIVE DATE CONDITIONS........................................................ 63
A. CONDITIONS TO CONFIRMATION................................................................. 63
B. CONDITIONS TO INITIAL DISTRIBUTION DATE.................................................... 63
C. CONDITIONS TO EFFECTIVE DATE............................................................... 64
D. WAIVER OF CONDITIONS....................................................................... 64
E. EFFECT OF FAILURE OF CONDITIONS............................................................ 64
F. ORDER DENYING CONFIRMATION................................................................. 65
SECTION XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN........................................ 65
A. LIQUIDATION UNDER CHAPTER 7................................................................ 65
B. ALTERNATIVE PLANS OF REORGANIZATION........................................................ 65
C. POST-CONFIRMATION CONVERSION/DISMISSAL..................................................... 66
D. FINAL DECREE............................................................................... 66
SECTION XII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS....................................................... 66
SECTION XIII. LIMITATION OF LIABILITY........................................................................ 77
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SECTION I.
OVERVIEW OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of
the Bankruptcy Code. Under chapter 11 of the Bankruptcy Code, a debtor is
authorized to reorganize its business and capital structure for the benefit of
its estate, creditors and stockholders. In addition to permitting rehabilitation
of a debtor, another goal of chapter 11 is to promote equality of treatment for
similarly situated creditors and interest holders with respect to the
distribution of a debtor's assets.
The commencement of a chapter 11 case creates an estate
containing all of the debtor's property as of the filing date. Generally, the
debtor remains in possession of its property and continues to operate its
business as a "debtor-in-possession."
The consummation of a plan of reorganization is the principal
objective of a chapter 11 case. A plan of reorganization sets forth the means
for treating claims against, and interests in, a debtor. Confirmation of a plan
of reorganization by the bankruptcy court makes the plan binding upon the
debtor, any issuer of securities under the plan, any person acquiring property
under the plan and any creditor or interest holder of the debtor. Subject to
certain limited exceptions, an order of the bankruptcy court confirming a plan
of reorganization discharges the debtor from any debt that arose prior to the
date of confirmation of the plan, and substitutes therefor the obligations
specified under the confirmed plan.
A claim or interest is impaired under a plan of reorganization
if the plan provides that such claim will not be repaid in full or that the
legal, equitable or contractual rights of the holder of such claim or interest
are altered. A holder of an impaired claim or interest that is receiving a
distribution under a plan is entitled to vote to accept or reject the plan of
reorganization. Chapter 11 does not require that every holder of a claim or
interest to vote in favor of a plan of reorganization in order for the
bankruptcy court to confirm the plan. However, the bankruptcy court must find
that the plan meets a number of statutory tests before it may confirm the plan.
Many of these tests are designed to protect the interests of holders of claims
or interests who do not vote to accept the plan, but who nonetheless will be
bound by the plan's provisions if it is confirmed by the bankruptcy court.
Before soliciting acceptances of the proposed plan, a plan
proponent must prepare and distribute to its creditors and interest holders
entitled to vote on the plan a detailed disclosure statement. Section 1125 of
the Bankruptcy Code requires that the disclosure statement contain adequate
information of a kind, and in sufficient detail, to enable a hypothetical
reasonable investor to make an informed judgment about the plan. The Debtors
have prepared this Disclosure Statement in accordance with the requirements of
Section 1125 of the Bankruptcy Code.
SECTION II.
DESCRIPTION OF THE DEBTORS' BUSINESS
Leap conducts operations through its subsidiaries. Leap has no
independent operations or sources of operating revenue other than through
dividends, if any, from its operating subsidiaries. Cricket is Leap's subsidiary
that operates the Cricket business, together with subsidiaries of Cricket and
Leap that hold assets that are used in the Cricket business or that hold assets
pledged as security under Cricket's senior secured vendor debt facilities. The
Cricket companies operate together as a wireless communications carrier that
provides innovative, affordable, simple wireless services designed to accelerate
the transformation of wireless service into a mass consumer product.
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The Cricket companies offer wireless service in the U.S. under
the brand "Cricket(R)," which is marketed as "Comfortable Wireless(R)." The
innovative Cricket strategy is designed to extend the benefits of mobility to
the mass market by offering wireless service that is as simple to use and
understand as, and is a competitive mobile alternative to, traditional landline
service. In each Cricket market, the Cricket companies are deploying 100%
digital, CDMA networks that Cricket believes provide higher capacity and more
efficient deployment of capital than competing technologies. CDMA technology,
combined with Cricket's efforts to streamline operations and distribution,
allows the Cricket companies to be a low-cost provider of wireless services in
each Cricket market.
Cricket service allows customers to make virtually unlimited
calls within a local calling area and receive virtually unlimited calls from any
area for a flat monthly rate. Cricket customers can also make long distance
calls on a per-minute basis or as part of a packaged offering. The simplicity of
the Cricket service allows Cricket to sustain lower operating costs per customer
compared to traditional wireless providers. Cricket's networks are designed and
built to provide coverage in the local calling area where its target customers
live, work and play. As a result, Cricket believes that Cricket's per minute
network operating costs are lower than, or comparable to the lowest costs
incurred by traditional wireless providers.
As of the Petition Date, Cricket offered service in 40 markets
covering a total population of approximately 25.2 million potential customers
(2002 POPs). As of May 31, 2003, Cricket:
- had approximately 1,475,406 customers in its markets
across the U.S.; and
- owned wireless licenses covering approximately 53.1
million potential customers in 33 states.
As of March 31, 2003, Cricket employed approximately 1,383
full time employees, and Leap had no employees.
An organizational chart for the Debtors is attached to this
Disclosure Statement as Exhibit C.
In addition to the disclosures made herein, please refer to
the attached Exhibit D, Leap's most recent Annual Report on Form 10-K/A, and
Exhibit E, Leap's most recent Quarterly Report on Form 10-Q, for additional
disclosures concerning the Debtors' business, operations, management and
structure. For a description of various risks and uncertainties applicable to
the Debtors and their business, please see "Risk Factors" in Exhibit E, Leap's
most recent Quarterly Report on Form 10-Q. For a reconciliation of total
liabilities reported in Leap's Petition, most recent Quarterly Report on Form
10-Q and Schedules, please see the attached Exhibit N and the notes thereto.
The Debtors have filed voluminous Schedules and Statements of
Financial Affairs with the Office of the United States Trustee. The Debtors
generally have reported their assets and liabilities on these Schedules at "net
book value," meaning the original cost of acquiring such assets less accumulated
depreciation. The Schedules and Statements of Financial Affairs filed for the
Cricket companies reported total assets having a net book value that exceeded
the total liabilities for such companies by approximately $51.3 million.
However, based upon the projections for Reorganized Leap (which will be the
holding company for the Cricket companies following the Effective Date of the
Reorganization) attached hereto as Exhibit G, the going concern enterprise
valuation of Reorganized Leap prepared by UBS Securities LLC and attached hereto
as Exhibit M, the current trading prices of the Old Vendor Debt and other
factors, the Debtors believe the Cricket companies are completely insolvent.
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STATEMENT REGARDING FINANCIAL PERFORMANCE OF CRICKET FOR APRIL AND MAY 2003
As of May 31, 2003, Cricket had 1,475,406 subscribers, down
38,071 subscribers from March 31, 2003. The Debtors believe that a significant
portion of the decline in subscribers since March 31, 2003 is due to the
reaction of the market and subscribers to Cricket's bankruptcy filing. The
Debtors' financial projections anticipate that Cricket will have 1,430,184
subscribers at September 30, 2003.
Total service revenue for the two-month period ending May 31,
2003 was $108.4 million compared to $107.5 million in the Cricket Cash Budget.
Total equipment revenue during such period was $14.7 million compared to $13.0
million in the Cricket Cash Budget for the same period.
Cricket's unrestricted cash and short-term investments for the
period increased by $47.9 million (rising to $165.5 million as of May 31, 2003)
compared to the Cricket Cash Budget, which projected an increase of $1.4 million
over the same period. Generally, the additional cash was generated through (i)
changes in working capital (excluding cash and short-term investments,
inter-company payables and current maturities of long-term debt) of $32.5
million resulting primarily from an increase in accounts payable and accrued
liabilities generally arising from the impact of the bankruptcy filing on the
Debtors' ability to pay pre-petition obligations, and (ii) net income, adjusted
for non-cash items, of $18.7 million, offset by cash capital expenditures of
$3.8 million. Net income for the period was higher than projected primarily as a
result of adding fewer than the projected number of new subscribers for the
period.
The Projections attached to this Disclosure Statement as
Exhibit G were prepared as of July 16, 2003 and include updates by the Debtors
to reflect the declines in subscribers being experienced by the Debtors while in
bankruptcy, their post-petition financial performance and other factors.
The results described above for Cricket for the two months
ended May 31, 2003 are not necessarily indicative of future results.
SECTION III.
SIGNIFICANT PREPETITION TRANSACTIONS
A. LEAP WIRELESS INTERNATIONAL, INC.
Units Offering. In February 2000, Leap completed an offering
of 225,000 senior units, each senior unit consisting of one 12 1/2% Senior Note
and one warrant to purchase Old Leap Common Stock, and 668,000 senior discount
units, each senior discount unit consisting of one 14 1/2% Senior Discount Note
and one warrant to purchase Old Leap Common Stock. The total gross proceeds from
the sale of the senior units and senior discount units were $225.0 million and
$325.1 million, respectively. Leap used the net proceeds of the offering for
capital expenditures, acquisitions of wireless licenses, strategic investments,
repayment of debt and general corporate purposes. The warrants issued in the
units offering are exercisable for an aggregate of 2,829,854 shares of Old Leap
Common Stock at an exercise price of $96.80 per share from February 23, 2001 to
before April 15, 2010.
Leap has outstanding 225,000 Senior Notes and 668,000 Senior
Discount Notes. Each note has a principal amount at maturity of $1,000. Interest
on the 12 1/2% Senior Notes is payable semi-annually. The 14 1/2% Senior
Discount Notes begin accruing Cash interest on April 15, 2005, with the first
semi-annual interest payment due October 15, 2005. At March 31, 2003, the
effective interest rates on the 12 1/2% Senior Notes and 14 1/2% Senior Discount
Notes were 15.8% and 16.3% per annum, respectively. Each 14 1/2% Senior Discount
Note has an initial
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accreted value of $486.68 and a principal amount at maturity of $1,000.
At the time the 12 1/2% Senior Notes were issued, Leap
purchased a portfolio of U.S. government debt securities and pledged such
securities to provide for the payment of scheduled interest payments on Leap's
12 1/2% Senior Notes through April 2003. Under the terms of the pledge
agreement, amounts in the pledged account also secure the repayment of all other
obligations under the 12 1/2% Senior Notes, if the notes are accelerated before
the first seven interest payments on the notes are paid in full. Leap filed its
Chapter 11 petition on April 13, 2003, prior to the payment of the seventh
interest payment secured by the pledged account. By order entered by the Court
on April 18, 2003, the holders of 12 1/2% Senior Notes received approximately
$14.1 million reflecting the amount of interest owing as of April 15, 2003.
Approximately $200,000 remains in the pledged account for the benefit of the
holders of the 12 1/2% Senior Notes. Thus, the holders of the 12 1/2% Senior
Notes have secured Claims in the aggregate amount of approximately $200,000
(Leap Class 1B Claims) and General Unsecured Claims for the remaining amounts
owing under the notes (Leap Class 4 Claims).
Leap may redeem any of the Old Leap Notes beginning April 15,
2005. The initial redemption price of the 12 1/2% Senior Notes is 106.25% of
their principal amount plus accrued interest. The initial redemption price of
the 14 1/2% Senior Discount Notes is 107.25% of their principal amount at
maturity plus accrued interest. In addition, before April 15, 2003, Leap may
redeem up to 35% of both the 12 1/2% Senior Notes and the 14 1/2% Senior
Discount Notes using proceeds from certain qualified equity offerings at 112.5%
of their principal amount and 114.5% of their accreted value, respectively. The
Old Leap Notes are guaranteed by CCH, Backwire.com, Inc. and Telephone
Entertainment Network, Inc. The terms of the Old Leap Notes include covenants
that restrict Leap's ability to, among other things, incur additional
indebtedness, create liens, pay dividends, make investments, sell assets, issue
or sell stock of some of Leap's subsidiaries, and effect a consolidation or
merger. These limitations are subject to a number of important qualifications
and exceptions contained in the Indenture.
Upon the occurrence of events constituting a change in control
of Leap, holders of the Old Leap Notes had the right to require Leap to
repurchase all or part of the Old Leap Notes for Cash at an aggregate purchase
price of 101% of the principal amount of the 12 1/2% Senior Notes or the
accreted value of the 14 1/2% Senior Discount Notes to be repurchased, as
applicable, plus accrued and unpaid interest thereon. In addition, in some cases
if Leap sold assets and did not use the net proceeds of the sale either to
retire senior debt or to reinvest in other assets that are used in the business
of Leap and its subsidiaries, Leap was required to offer to repurchase the notes
at a purchase price equal to 100% of the principal amount of the 12 1/2% Senior
Notes or accreted value of the 14 1/2% Senior Discount Notes, plus accrued and
unpaid interest thereon.
Events which would constitute an event of default under the
Old Leap Notes if they occurred included, among others, Leap's failure to make
payments under the Old Leap Notes and certain other debt when due, Leap's
failure to comply with covenants or other provisions of the Indenture, an event
of default occurs in respect of more than $5.0 million of other indebtedness of
Leap or its subsidiaries that results in the acceleration of such indebtedness
before its maturity, or bankruptcy or insolvency of Leap or some of its
subsidiaries. In the case of an event of default arising from bankruptcy or
insolvency, all outstanding Old Leap Notes would become due and payable
immediately. No event of default under the Old Leap Notes existed prior to the
commencement of the Chapter 11 Cases.
Equity Offerings. In February 2000, Leap completed a public
equity offering of 4,000,000 shares of Old Leap Common Stock at a price of
$88.00 per share. Net of underwriters' discounts and commissions and offering
expenses, Leap received $330.0 million. Leap used the net proceeds of this
offering for capital expenditures, acquisitions of wireless licenses, strategic
investments, repayment of debt and general corporate purposes. In May 2001, Leap
completed
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an underwritten public offering of 3,000,000 shares of Old Leap Common Stock at
a price of $33.50 per share. Net of underwriting discounts and commissions and
offering expenses, Leap received $97.9 million. Leap used the net proceeds of
this offering for acquisitions, spectrum purchases and for general corporate
purposes.
Chase Telecommunications Holdings. In March 2000, Leap
completed the acquisition of substantially all of the assets of Chase
Telecommunications Holdings, Inc., including wireless licenses. The purchase
price included $6.3 million in Cash, the assumption of principal amounts of
liabilities that totaled $138.0 million (with a fair value of $131.3 million), a
warrant exercisable to purchase 202,566 shares of Old Leap Common Stock at an
aggregate exercise price of $1.0 million (which had a fair value of $15.3
million at the acquisition date), and contingent earn out payments of up to
$41.0 million (plus certain expenses) based on the earnings of the business
acquired during the fifth full year following the closing of the acquisition. In
July 2001, Chase Telecommunications Holdings received 89,345 shares of Old Leap
Common Stock upon exercising a portion of the warrant by surrendering 107,567
shares in payment of the exercise price.
Smartcom. From April 1999 to the date of sale on June 2, 2000,
Leap owned 100% of Smartcom, S.A. ("Smartcom"), a Chilean corporation that
operates a nationwide wireless network in Chile. On June 2, 2000, Leap completed
the sale of Smartcom to Endesa S.A. in exchange for gross consideration of
approximately $381.5 million, consisting of $156.8 million in Cash, three
promissory notes totaling $143.2 million, subject to post closing adjustments,
the repayment of intercompany debt due to Leap by Smartcom totaling $53.3
million, and the release of cash collateral posted by Leap securing Smartcom
indebtedness of $28.2 million. Leap recognized a gain on sale of Smartcom of
$313.4 million before related income tax expense of $34.5 million during the
quarter ended June 30, 2000. In February 2001, Leap sold one of the promissory
notes, with an original principal amount of $58.2 million plus accrued interest,
to a third party for $60.7 million. In June 2001, Endesa repaid $47.5 million of
principal and accrued interest for the second promissory note. The remaining
promissory note of $35.0 million is subject to a right of set-off to secure
indemnification claims under the purchase agreement. Endesa has asserted claims
of up to approximately $48.7 million against Leap for breach of representations
and warranties under the purchase agreement and has notified Leap that it is
offsetting the claims against the unpaid balance of the note. The note matured
on June 2, 2001 and Leap expects it to remain unpaid until the issues related to
the claims are resolved. Leap has caused its wholly owned Chilean subsidiary to
be merged with and into Leap. Therefore, the $35.0 million note is owned by
Leap, and the claims of Endesa are against Leap. Leap believes that Endesa's
claims are without merit, and Leap is contesting Endesa's claims. Management of
Leap believes that the ultimate outcome of this matter will not have a material
adverse effect on its consolidated financial position, results of operations or
cash flows.
Cricket Communications Holdings. On June 15, 2000, through a
subsidiary merger, Leap acquired the remaining 5.11% of CCH that it did not
already own. These shares were owned by individuals and entities, including
directors and employees of Leap and CCH. Each issued and outstanding share of
Old CCH Common Stock not held by Leap was converted into the right to receive
0.315 of a fully paid and non-assessable share of Old Leap Common Stock. As a
result, 1,048,635 shares of Old Leap Common Stock were issued. Leap also assumed
Chase Telecommunications Holdings' warrant to purchase 1% of Old CCH Common
Stock, which was converted into a warrant to acquire 202,566 shares of Old Leap
Common Stock, at an aggregate exercise price of $1.0 million. In addition, Leap
assumed all unexpired and unexercised CCH stock options outstanding at the time
of the merger, whether vested or unvested, which upon conversion amounted to
options to purchase 407,784 shares of Old Leap Common Stock.
Common Stock Purchase Agreement. In December 2000, Leap
entered into a common stock purchase agreement with Acqua Wellington North
American Equities Fund, Ltd.
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("Acqua Wellington") under which Leap may, at its discretion, sell up to a
maximum of $125.0 million of registered Old Leap Common Stock from time to time
over the succeeding 28-month period. Under the agreement, Leap may require Acqua
Wellington to purchase between $10.0 and $25.0 million of Old Leap Common Stock,
depending on the market price of Old Leap Common Stock, during each of one or
more 18 trading day periods. Leap cannot require Acqua Wellington to purchase
Old Leap Common Stock if the market price of Old Leap Common Stock is less than
$15 per share. Under the purchase agreement, Leap may grant to Acqua Wellington
an option to purchase up to an equal amount of Old Leap Common Stock that Leap
requires it to purchase during the same 18 trading day period. Acqua Wellington
purchases the Old Leap Common Stock at a discount to its then current market
price, ranging from 4.0% to 5.5%, depending on Leap's market capitalization at
the time Leap requires Acqua Wellington to purchase Old Leap Common Stock. A
special provision in the agreement (as amended and restated) allowed the first
sale of Old Leap Common Stock under the agreement to be up to $55.0 million. In
January 2001, Leap completed the first sale of Old Leap Common Stock under the
agreement, issuing 1,564,336 shares to Acqua Wellington in exchange for $55.0
million. In July 2001, Leap completed the second sale of Old Leap Common Stock
under the agreement, issuing 521,396 shares of Old Leap Common Stock to Acqua
Wellington in exchange for $15.0 million. Leap used the proceeds of these sales
for acquisitions and wireless license purchases and for general corporate
purposes.
Qualcomm Term Loan. In January 2001, Leap entered into a
secured loan agreement with Qualcomm Incorporated under which Qualcomm agreed to
loan Leap approximately $125.3 million to finance its acquisition of wireless
licenses in the FCC's broadband PCS auction completed in January 2001 ("Auction
35"). In March 2001, Qualcomm funded borrowings of the full amount available
under the agreement by transferring to Leap an FCC auction discount voucher, and
Leap issued promissory notes in favor of Qualcomm for an aggregate principal
amount of $126.6 million, representing $125.3 million for the value of the
auction discount voucher and $1.3 million for a commitment fee due to Qualcomm
at the initial borrowing. In August 2001, at the request of Qualcomm, Leap
agreed to return the auction discount voucher to Qualcomm, cancel the $125.3
million loan and reestablish the availability for either a cash loan or a
re-borrowing of the auction discount voucher in the future, however Leap does
not expect to be able to satisfy the conditions precedent to make any further
draws under this facility. Leap must repay any loans, including the $1.5 million
of fees due under the loan at March 31, 2003, and accrued interest to Qualcomm
in a single payment no later than March 2006. Loans under the agreement bear
interest at a variable rate, depending on the collateral Leap provides, equal to
LIBOR plus 7.5% to 12.5% per annum.
Auction 35. Leap was the winning bidder for 22 wireless
licenses covering approximately 24.1 million potential customers in the FCC's
Auction 35. The former holder of the licenses challenged the validity of Auction
35 in court, and the licenses were never granted to Leap. In December 2002, Leap
accepted an offer from the FCC and withdrew from its commitment and right to
purchase the licenses on which it was the successful bidder in Auction 35. In
connection with that withdrawal, Leap received a refund of $10.5 million in
payments it had made to the FCC relating to Auction 35, which was in addition to
the $74.2 million received earlier in the year. Leap has applied for a refund of
the remaining approximately $268,000 of payments it made to the FCC in
connection with Auction 35.
MCG. In June 2001, Leap acquired wireless licenses in Buffalo
and Syracuse, New York from MCG PCS, Inc. for an aggregate of $18.3 million in
Cash and an $18.0 million convertible promissory note with interest at the rate
of 8.5% per annum, with principal and interest payable at maturity on June 15,
2002. The note was secured by a pledge of the outstanding stock of a wholly
owned subsidiary of Leap that owns the Buffalo, New York wireless license. The
$18.0 million promissory note was repaid in full in June 2002. In connection
with the acquisitions of wireless licenses in Buffalo and Syracuse, MCG asserted
that, based on the prices of certain wireless licenses auctioned by the FCC in
Auction 35, it was
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entitled to a purchase price adjustment pursuant to the terms of the purchase
agreement for such licenses. The matter was submitted to binding arbitration and
in August 2002 the arbitrator determined that the seller was entitled to a
purchase price adjustment of $39.8 million payable immediately in Cash, or, in
Leap's sole discretion, approximately 21 million shares of Old Leap Common
Stock. In August 2002, Leap paid the purchase price adjustment to MCG by issuing
21,020,431 shares of Old Leap Common Stock, representing approximately 36% of
the outstanding Old Leap Common Stock, and approximately 28% of Old Leap Common
Stock on a fully diluted basis, following such issuance. The issuance of Old
Leap Common Stock to the seller without the consent of the Holders of Old Vendor
Debt constituted an event of default under the Vendor Debt Facilities. In
addition, because the award was payable immediately, Leap did not obtain
stockholder approval of the issuance as required by the rules of the Nasdaq
National Market. Old Leap Common Stock was delisted from the Nasdaq National
Market on December 11, 2002 and began trading on the OTC Bulletin Board. In
December 2002, Leap paid approximately $1.4 million to MCG in satisfaction of
the arbitration award regarding attorneys' fees, expenses and costs.
Pegaso. Leap was a founding shareholder and made investments
in and loans to Pegaso Telecomunicaciones, S.A. de C.V. ("Pegaso"), a company
providing wireless service in Mexico, totaling $120.5 million. In the fourth
quarter of fiscal 2001, Leap discontinued its use of the equity method of
accounting for Pegaso and ceased recognizing its share of Pegaso's losses
because its investment in and loans to Pegaso had been reduced to zero on its
books of account. In September 2002, Leap completed the sale of its 20.1%
interest in Pegaso to Telefonica Moviles, S.A. At the closing, Leap received
cash proceeds of approximately $22.2 million for the sale of its shares. In
October 2002, Leap received approximately $15.8 million of additional cash from
a loan repayment related to the sale. In connection with the sale, Leap was
released from its obligations under a $33 million guarantee to Qualcomm
Incorporated ("Qualcomm") of Pegaso's outstanding capital loans from Qualcomm,
by delivering to Qualcomm its rights under the warrants it acquired in
connection with the guarantee. Pursuant to Cricket's Vendor Debt Facilities,
Leap was obligated to set aside or contribute to the Cricket companies
approximately $25.8 million of the proceeds from the sale of Pegaso. Because of
the financial condition and expected restructuring of Leap and Cricket, however,
Leap did not make the set asides and contributions and instead retained the
funds at Leap. Leap's failure to contribute or set aside those amounts was a
breach of contract by Leap and an additional event of default under the Vendor
Debt Facilities.
Securities Class Action Litigation. Between December 5, 2002
and February 7, 2003, nine securities class action lawsuits were filed against
Leap, Harvey P. White, Leap's Chairman and Chief Executive Officer ("White"),
Susan G. Swenson, Leap's President, Chief Operating Officer and director
("Swenson"), and Manford Leonard, Leap's Vice President and Controller
("Leonard"), in the United States District Court for the Southern District of
California on behalf of all persons who purchased or otherwise acquired Old Leap
Common Stock from February 11, 2002 through July 24, 2002 (the "Class Period").
The nine lawsuits are captioned: (1) Solomon Schechter v. Leap, White, Swenson
and Leonard, Case No. 02-CV-02385-J (JAH); (2) James Threkeld v. Leap, White,
Swenson and Leonard, Case No. 2455-J (POR); (3) Jack Hearn v. Leap, White,
Swenson and Leonard, Case No. 02-CV-2515-BTM (LSP); (4) Jonathan Crowell,
Trustee of the Cornelia I. Crowell Trust v. Leap, White, Swenson and Leonard,
Case No. 02-CV-2514-JM (LAB); (5) Bridget Gillen v. Leap, White, Swenson and
Leonard, Case No. 02-CV-2545-J (JFS); (6) Andrew Bennet v. Leap, White, Swenson
and Leonard, Case No. 02-CV-2563-IEG (JFS); (7) Reginald J. Hudson v. Leap,
White, Swenson and Leonard, Case No. 03-CV-0072-K (JAH); (8) Cyril Marsden v.
Leap, White, Swenson and Leonard, Case No. 03-CV-0158-H (JAH); and (9) Gary
Kissinger v. Leap, White, Swenson and Leonard, Case No. 03-CV-0257-JM (RBB).
These lawsuits are virtually identical and each alleges that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and
Rule 10b-5 promulgated thereunder, by issuing a series of material
misrepresentations to the market during the Class Period, thereby artificially
inflating the price of Old Leap Common Stock. Plaintiffs
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allege that defendants concealed the deteriorated value of Leap's wireless
licenses by relying upon a fraudulent impairment test of those assets, which
resulted in a gross and material overstatement of the value of Leap's assets in
its financial statements. The actions seek an unspecified amount of damages,
plus costs and expenses related to bringing the actions. On March 14, 2003, the
Court entered plaintiffs' stipulation and order for the appointment of lead
plaintiffs and approval of lead plaintiffs' selection of lead counsel and
ordered the cases consolidated under the caption In re Leap Wireless
International, Inc. Securities Litigation, Case No. 02-CV-2388J (AJB). On May
23, 2003,. the plaintiffs filed an amended complaint that only named White and
Swenson as defendants.
Derivative Action. On February 24, 2003, plaintiff Steven
Zawalick filed a purported derivative action on behalf of Leap against Morgan
Stanley & Co., Inc., Donaldson Lufkin Jenrette Securities Corporation, Bear
Stearns & Co., Inc., ABN AMRO Incorporated and Credit Suisse First Boston Corp.,
each of whom were initial purchasers in the private placement of Old Leap Notes
on February 23, 2000, and nominally against Leap, in the Supreme Court of the
State of New York, Case No. 03600591. The complaint alleges that the sales were
disguised loan brokerage transactions and that the investment banking firms
charged excessive brokerage fees in violation of New York General Obligations
Law Section 5-531, which limits the fees payable to loan brokers. The complaint
seeks compensatory damages, costs and fees in connection with bringing suit, and
other remedies. Leap believes the plaintiff lacked a right to bring the claim,
that the complaint violates the automatic stay and that the claim is without
merit and intends to defend the case vigorously.
Nasdaq Delisting. On December 11, 2002, Old Leap Common Stock
was delisted from the Nasdaq National Market and began trading on the OTC
Bulletin Board.
B. CRICKET COMMUNICATIONS, INC.
Purchase Agreements. Cricket has entered into purchase
agreements with each of Lucent, Nortel and Ericsson for the purchase of network
infrastructure products and services. Prior to filing the Petition, consistent
with the terms and conditions of the purchase agreements, Cricket transferred
equipment, software, licenses and certain contract rights under the Lucent,
Nortel and Ericsson purchase agreements to each of Cricket Performance I, Inc.,
Cricket Performance II, Inc. and Cricket Performance III, Inc., respectively.
Each of these transferees is a Delaware corporation and wholly-owned subsidiary
of Cricket. None of Cricket Performance I, Inc., Cricket Performance II, Inc. or
Cricket Performance III, Inc. have filed for bankruptcy.
Cricket and Lucent are currently negotiating the terms under
which Cricket may assume its purchase agreement with Lucent, if at all. In
connection with those negotiations, Lucent has challenged the validity of the
pre-petition transfers of equipment, software, licenses and contract rights to
Cricket Performance I, Inc. However, Cricket believes the transfers were valid.
Lucent and Cricket continue to negotiate with respect to outstanding disputes
under the purchase agreement and a possible assumption of the purchase
agreement. If the parties do not reach agreement, their disputes concerning the
purchase agreement may be brought before the Bankruptcy Court for resolution.
Failure to reach an agreement could eventually lead to Cricket's rejection of
the Lucent purchase agreement, and to a decision by Lucent not to sell products
and services to Reorganized Cricket, including software enhancements and
upgrades. A FAILURE BY CRICKET AND LUCENT TO RESOLVE THEIR CURRENT DISPUTES
CONCERNING THE PURCHASE AGREEMENT COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
REORGANIZED DEBTORS AND CRICKET PERFORMANCE I AND THEIR BUSINESSES FOLLOWING THE
EFFECTIVE DATE.
Nortel Networks disputes the validity of Cricket's purported
transfer of the RTU License and the RTM License for the software furnished
Cricket under the Amended and Restated System Equipment Purchase Agreement dated
as of December 23, 2002, between Cricket and Nortel Networks, as well as
Cricket's purported transfer of any other equipment,
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software, licenses or other contract rights, to Cricket Performance II or any
other entity. Among other things, Nortel Networks asserts that its contract
expressly states that it may not be assigned by Cricket without the express
prior written consent of Nortel Networks, which consent was not given. However,
Cricket believes that the transfers were valid. Notwithstanding the foregoing,
Cricket and Nortel Networks currently are negotiating the terms under which
Reorganized Cricket may assume Cricket's purchase agreement with Nortel
Networks, if at all. If the parties do not reach agreement, their disputes
concerning, among other things, the purchase agreement and the assignment of
portions thereof may be brought before the Bankruptcy Court for resolution. A
failure by Cricket and Nortel Networks to resolve their disputes concerning the
purchase agreement could eventually lead to Cricket's rejection of the Nortel
Networks purchase agreement, and to a decision by Nortel Networks not to sell
products and services to Reorganized Cricket, including software enhancements
and upgrades. A FAILURE BY CRICKET AND NORTEL NETWORKS TO RESOLVE THEIR CURRENT
DISPUTES CONCERNING THE PURCHASE AGREEMENT COULD HAVE A MATERIAL ADVERSE EFFECT
ON THE REORGANIZED DEBTORS AND CRICKET PERFORMANCE II, INC. AND THEIR BUSINESSES
FOLLOWING THE EFFECTIVE DATE.
Vendor Financing. In connection with the purchase agreements
described above, Cricket entered into Vendor Debt Facilities with each of
Lucent, Nortel and Ericsson to finance purchases of network infrastructure
products and services plus interest expense and other costs and origination and
commitment fees related to the credit facilities. As of the Petition Date,
Cricket was in default under each of its Vendor Debt Facilities. As of March 31,
2003, Cricket had approximately $1,614.3 million outstanding under its Vendor
Debt Facilities. Substantially all of the indebtedness originally issued under
the Vendor Debt Facilities has been resold to approximately 100 institutional
investors by each of Lucent, Nortel and Ericsson and their transferees. These
institutional investors now constitute almost all of the Holders of the Old
Vendor Debt, and several of these institutional investors now comprise the
Informal Vendor Debt Committee. In addition, as of March 31, 2003, Cricket had
$49.9 million payable to Lucent, Nortel and Ericsson for the purchase of
equipment and services.
Because of the events of default under the Vendor Debt
Facilities, each of the lenders under those facilities terminated their
commitments under the Vendor Debt Facilities. The defaults also provide the
lenders under such facilities with various rights under their Vendor Debt
Facilities and related security agreements, including the right to foreclose on
the collateral pledged to secure the outstanding loans, subject to the requisite
approval of the Bankruptcy Court. The loans to Cricket under the Old Vendor Debt
facilities were guaranteed by CCH, the License Holding Companies and the
Property Holding Companies. The Collateral pledged to secure the Old Vendor Debt
includes all of the stock of Cricket, substantially all of the License Holding
Companies and the Property Holding Companies, and all of their respective
assets, and all of the assets of CCH. Thus, the holders of Old Vendor Debt
Claims have secured claims against CCH, Cricket, substantially all of the
License Holding Companies and the Property Holding Companies equal to the value
of the Collateral and general unsecured claims against such entities to the
extent of any deficiency. As noted above, Leap pledged the stock of
substantially all of the License Holding Companies owned by Leap to secure the
outstanding loans to Cricket under the Old Vendor Debt facilities, but Leap did
not expressly guarantee the loans. Thus, the holders of the Old Vendor Debt
Claims also have secured claims against Leap equal to the value of the stock
pledged by Leap as Collateral and General Unsecured Claims against Leap,
including any undersecured Claim that could be asserted by operation of the
Bankruptcy Code.
Lucent, Nortel and Ericsson originally agreed to share
collateral and limit total loans secured thereunder to $1,845.0 million.
Borrowings under each of the Vendor Debt Facilities accrued interest at a rate
equal to LIBOR plus 3.5% to 4.25% or a bank base rate plus 2.5% to 3.25%, in
each case with the specific rate based on the ratio of total indebtedness to
EBITDA, as defined in the Vendor Debt Facilities. If an event of default has
occurred and is continuing, the administrative agent under a Vendor Debt
Facility, at the request of the lenders
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under the Vendor Debt Facility, may restrict Cricket's ability to choose LIBOR
interest rates for outstanding borrowings. Any rate that is not paid when due
under a Vendor Debt Facility will bear interest after the due date at the rate
then applicable to base rate loans plus 2%. The Vendor Debt Facilities provide
that principal payments under each of the Vendor Debt Facilities were scheduled
to begin in December 2002 for Lucent and in December 2003 for Nortel and
Ericsson, with a final maturity in June 2007 for Lucent and in September 2008
for Nortel and Ericsson. Repayment of principal is required in 20 quarterly
payments, with the annual principal repayments totaling 10%, 15%, 20%, 25% and
30% of the principal outstanding at the end of the availability period,
respectively, during the first through fifth years following the end of the
availability period. Cricket did not make the first principal payment due in
December 2002 under the Lucent Vendor Debt Facility, which constituted an event
of default under the agreement. Borrowings under the Vendor Debt Facilities at
March 31, 2002 had a weighted-average effective interest rate of 10.1% per
annum. The Vendor Debt Facilities require that Cricket maintain interest rate
cap agreements so that 50% of the long-term indebtedness of Cricket either bears
interest at a fixed rate or is covered by interest rate cap agreements.
Remaining fees currently due Nortel, Lucent, Ericsson and
others under the Vendor Debt Facilities (which fees also constitute Old Vendor
Debt secured by the Collateral described above) include origination, commitment
and administrative agent fees totaling approximately $40.5 million.
Each of the Vendor Debt Facilities contain various covenants
and conditions, including minimum levels of customers and covered potential
customers that must increase over time, minimum revenues, minimum EBITDA, limits
on annual capital expenditures, dividend restrictions (other than the Nortel
Facility) and other financial ratio tests.
C. OTHERS
Debt Obligations to the FCC and Note Payable. As of the
Petition Date, certain of the License Holding Companies had assumed an aggregate
of approximately $78 million in debt obligations to the FCC as part of the
purchase price for wireless licenses. The terms of the notes include interest
rates ranging from 6.25% to 9.75% per annum and quarterly principal and interest
payments until maturity through July 2007. The notes were discounted using
management's best estimate of the prevailing market interest rate at the time of
purchase of the wireless licenses ranging from 9.75% to 10.75% per annum. At
March 31, 2003, the weighted-average effective interest rate for the License
Holding Companies' debt obligations to the FCC and GLH was 9.9% per annum.
In April 2002, Leap completed the exchange of certain wireless
licenses with GLH. Pursuant to the agreement, GLH assumed FCC debt totaling $8.4
million related to certain of the wireless licenses transferred to GLH in the
exchange. In consideration for GLH's assumption of the FCC debt, Leap provided
to GLH a note payable totaling $8.4 million, which is secured by a pledge of the
stock of Cricket Licensee XI, Inc., a Leap subsidiary that owns certain wireless
licenses that are not used in the Cricket business. In January 2003, Leap chose
not to make a payment of principal and accrued interest that was due on the
note, which constituted an event of default. Leap has received a notice of
default from GLH and a notice of acceleration of the principal and accrued
interest balance. GLH has also notified Leap that it intends to foreclose on the
collateral.
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SECTION IV.
KEY EVENTS LEADING TO THE
COMMENCEMENT OF THE CHAPTER 11 CASES
A. PRE-PETITION PLAN NEGOTIATIONS
To address the Debtors' long-term financial needs, the
Debtors' management began developing plans to improve the Debtors' capital
structure. In order to maximize the recovery for their stakeholders, the
Debtors, with the assistance of their financial advisor, determined that this
could be achieved best through a restructuring. As such, in the Fall of 2002,
the Debtors facilitated the organization of the Informal Vendor Debt Committee
and the Informal Noteholder Committee and paid for financial and legal advisors
to such committees. Thereafter, the Debtors began negotiations with each of the
Informal Vendor Debt Committee and the Informal Noteholder Committee to develop
and consummate a consensual restructuring of the Old Leap Notes and the Old
Vendor Debt.
The major issue to be resolved between the Informal Vendor
Debt Committee and the Informal Noteholder Committee arose from the March 2002
amendments to the Vendor Debt Facilities. On March 18, 2002, Cricket and the
Holders of the Old Vendor Debt amended the Vendor Debt Facilities to revise
certain covenants dealing with EBITDA. Concurrently with those amendments, Leap
agreed to (a) transfer additional FCC licenses to License Holding Companies (and
thereby make such licenses part of the Vendors' collateral pool) and (b)
transfer Cash from Leap to both Cricket and the License Holding Companies (the
latter primarily to fund obligations owing to the FCC with respect to licenses)
(the "March Agreement"). Through August 2002, Leap made a variety of downstream
transfers in accordance with the March Agreement. For example:
- In March 2002, Leap transferred approximately $86.6
million to CCH as a capital contribution, and caused
CCH to transfer such amounts to Cricket as a capital
contribution.
- In May 2002, Leap transferred a refund from the FCC
(in the approximate amount of $34.5 million) to CCH
as a capital contribution, and caused CCH to transfer
such amounts to Cricket as a capital contribution.
- Between March and August 2002, Leap transferred 28
licenses to Cricket Licensee (Reauction), Inc.
Cricket Licensee (Reauction), Inc. had previously
executed a security agreement and guarantee in favor
of the Vendors. Also between March and August 2002,
Leap pledged the stock and assets of Cricket Licensee
(Albany), Inc., Cricket Licensee (Columbus), Inc. and
Cricket Licensee (Macon), Inc. to secure the
obligations of Cricket under the Vendor Debt
Facilities. Each of the foregoing License Holding
Companies executed security agreements and guarantees
in favor of the Vendors in connection with such
pledge.
If Leap had not executed the March Agreement and the Holders
of Old Vendor Debt had terminated the Vendor Debt Facilities and exercised
remedies, the entire Leap/Cricket corporate enterprise could have been
threatened. Moreover, a default and acceleration under the Vendor Debt
Facilities would have caused an Event of Default under the Indenture.
The Informal Noteholder Committee alleged that the March
Agreement (and related downstream transfers and/or pledges of Cash and assets by
Leap) constituted a fraudulent transfer. The Debtors and the Informal Vendor
Debt Committee disputed those allegations. The Informal Vendor Debt Committee
alleged that Leap breached its obligations under the March
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Agreement by failing to make certain additional downstream contributions
required thereunder. In order to avoid litigation and expense, the Debtors, the
Informal Noteholder Committee and the Informal Vendor Debt Committee agreed to
resolve any dispute arising from the March Agreement (and any other intercompany
transfer between the Debtors). That resolution is reflected in the terms and
conditions of the Plan. In essence, the Holders of Leap General Unsecured Claims
will receive their beneficial interests in the Leap Creditor Trust and the Leap
General Unsecured Claim Cash Distribution and, upon the occurrence of the
Effective Date, will receive the Leap General Unsecured Claim Equity
Distribution (representing 3.5% of the issued and outstanding shares of New Leap
Common Stock on the Effective Date), in exchange for a full settlement and
mutual release of any and all Litigation Claims and Intercompany Claims that
could have been asserted pre-petition (and any Litigation Claims arising out of
any alleged preference or fraudulent transfer) by any Debtor, its Estate, the
Holders of General Unsecured Claims against Leap and the Holders of Old Vendor
Debt as follows:
The Plan implements a compromise of any and all claims,
whether known or unknown, liquidated or contingent, asserted
or unasserted, for recoveries for fraudulent transfers,
preferences, breach of contract or any other actual or
potential cause of action, between and for the benefit of each
of the Debtors and their Estates (and their respective
officers, directors, professionals and agents), the Informal
Vendor Debt Committee and the Official Committee (and each
committee's respective members, professionals and agents in
such capacity) and, to the maximum extent permitted by law,
all Vendor Debt Holders and Holders of Leap General Unsecured
Claims, in each case with respect to any and all transfers
between the Debtors (other than as expressly provided in the
Plan). The occurrence of the Confirmation Date is conditioned
upon, among other matters, the entry of a Confirmation Order
describing and implementing mutual general releases by each of
the Debtors, the Official Committee, the Informal Vendor Debt
Committee, the Holders of General Unsecured Claims against
Leap and the Holders of Old Vendor Debt in form and substance
satisfactory to such parties.
In April 2003, the Debtors and members of the Informal Vendor
Debt Committee and the Informal Noteholder Committee agreed to the general
business terms of the Plan.
SECTION V.
THE CHAPTER 11 CASES
A. DISCLOSURE STATEMENT AND PLAN CONFIRMATION HEARINGS
The Debtors filed this Disclosure Statement and the Plan with
the Court on July 18, 2003. The Court considered the adequacy of the Disclosure
Statement and the Plan at a hearing on [__________], 2003. The Confirmation
Hearing in respect of the Plan has been scheduled for [_________], 2003 at 8:30
a.m., Pacific Time, before the Honorable Louise DeCarl Adler in the United
States Bankruptcy Court for the Southern District of California, Jacob
Weinberger U.S. Courthouse, 325 West F Street, San Diego, California 92101.
B. SIGNIFICANT MOTIONS DURING THE CHAPTER 11 CASES(4)
Simultaneous with the filing of their Petitions, the Debtors
filed numerous "first day" motions seeking orders from the Court authorizing the
Debtors to retain professionals and providing the Debtors certain relief from
certain administrative requirements imposed by the
- ------------------------
(4) For copies of motions filed by the Debtors, please log on to the Debtors'
website, www.leapreorganization.com.
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Bankruptcy Code. On April 14, 2003 and at various dates thereafter as reflected
on the Docket, the Court entered orders granting the Debtors the various forms
of relief requested. In particular, the Debtors obtained orders approving, inter
alia, the following motions and applications:
(a) MOTIONS RELATING TO ADMINISTRATION OF CASES:
(i) Motion for Order Directing the Joint Administration
of the Chapter 11 Cases;
(ii) Emergency Application for Order Under 28
U.S.C. Section 156(c) Authorizing the Retention of
Poorman-Douglas Corporation as Notice, Claims and
Data Management Agent for the Debtors;
(iii) Motion for Order Authorizing Debtors to Employ and to
Compensate Certain Professionals in the Ordinary
Course of Business;
(iv) Application to Retain and Employ and Compensate
Latham & Watkins LLP as General Bankruptcy Counsel
for the Debtors;
(v) Application to Retain UBS Securities LLC as Financial
Advisor to the Debtors; and
(vi) Motion for Order Establishing Notice and Service
Requirements in Debtors' Chapter 11 Cases and
Authorizing Debtors to Give Limited Notice.
(b) MOTIONS RELATING TO FINANCING:
(i) Motions for Interim (granted) and Final (pending)
Order Authorizing the Use of Cash Collateral and
Granting Replacement Liens.
(c) MOTIONS RELATING TO EMPLOYEES AND THE OPERATION OF THE
BUSINESS:
(i) Motion for Order (A) Authorizing Debtors to (1) Pay
Prepetition Employee Wages, Salaries, Bonuses and
Related Items, (2) Reimburse Prepetition Employee
Business Expenses, (3) Make Payments for Which
Payroll Deductions Were Made, (4) Make Prepetition
Contributions and Pay Benefits Under Employee Benefit
Plans and (5) Pay All Costs Incidental to the
Foregoing Payments and Contributions, and (B)
Authorizing and Directing Applicable Banks and Other
Financial Institutions to Receive, Process, Honor and
Pay Any and All Checks Drawn on Debtors' Accounts for
Such Purposes;
(ii) Motion for Order Authorizing Implementation of
Retention Plan;
(iii) Motion for Order Authorizing Implementation of
Severance Agreements for Senior Management; and
(iv) Motion for Order (I) Authorizing Continued Use of
Existing Business Forms and Records and Maintenance
of Existing Corporate Bank Accounts and Cash
Management Systems, (II) Approving Investment
Guidelines and (III) Authorizing Continuation of
Intercompany Transactions.
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(d) MOTIONS RELATING TO VENDORS AND SUPPLIERS:
(i) Motion for Authority to Pay Certain Critical
Prepetition Trade Creditors in the Ordinary Course;
and
(ii) Motion for Order Pursuant to 11 U.S.C. Sections 105,
503(b), 507(a) and 366 (I) Prohibiting Utilities from
Altering, Refusing or Discontinuing Services on
Account of Prepetition Invoices and (II) Establishing
Procedures For Determining Requests for Additional
Adequate Assurance.
The Debtors have paid or will pay Allowed pre-petition amounts owing to the
critical vendors that the Debtors intend to pay pursuant to these motions;
provided, however, the Debtors are dealing separately with utilities pursuant to
the Court Order with respect to adequate assurance for utilities.
(e) MOTIONS RELATING TO CUSTOMERS:
(i) Motion for an Order Pursuant to 11 U.S.C. Section
105(a) Authorizing, but not Directing, Debtors to
Honor Certain Prepetition Obligations to Consumer
Customers and to Continue Certain Consumer Customer
Programs and Practices.
(f) OTHER MOTIONS:
(i) Motion for Order Pursuant to Sections 105(a) and 541
of the Bankruptcy Code Authorizing the Debtors to Pay
Prepetition Sales and Use Taxes, Regulatory Fees and
Business License Fees and Directing Wells Fargo Bank
to Honor Prepetition Checks for Payment of
Prepetition Sales and Use Taxes, Regulatory Fees and
Business License Fees; and
(ii) Motion for Order Authorizing the Debtors to Reject
Certain Executory Contracts and Non-Residential Real
Property Leases Nunc Pro Tunc to the Petition Date.
C. DEADLINE TO FILE PROOF OF CLAIMS AND INTERESTS
On April 13, 2003, the Debtors also filed a motion seeking an
order (the "Bar Date Order") from the Court requiring any person or entity
holding or asserting a claim against the Debtors to file a written proof of
claim with Poorman-Douglas Corporation at the following address: Leap Wireless
International, Inc. c/o Poorman-Douglas Corporation, 10300 SW Allen Boulevard,
Beaverton, Oregon 97005, Attention: Leap Wireless International Claims
Processing, on or before 4:00 p.m. (Pacific Time) on June 28, 2003 (the "Bar
Date"). The motion requested that any person or entity that fails to timely file
a proof of claim will be barred, estopped and enjoined forever from voting on,
or receiving a distribution under, the Plan, and will be barred, estopped and
enjoined forever from asserting a Claim against the Debtors, their Estates,
Reorganized Debtors, and any of their successors or assigns. On April 14, 2003,
the Court entered the Bar Date Order and pursuant to such order, June 28, 2003
was established as the Bar Date.
The Debtors subsequently discovered that a number of parties
in interest who may hold claims against the Debtors were not served by mail with
the notice of the Bar Date by the Debtors (the "Additional Parties").
Accordingly, on June 30, 2003, the Debtors filed an ex parte motion for an order
fixing a supplemental Bar Date. By order dated July ___, 2003, the Court fixed
August ___, 2003 as the supplemental Bar Date with respect to the Additional
Parties.
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The Bar Date for governmental entities was established by the
Court as July 28, 2003.
D. ASSUMPTION AND REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. ASSUMPTION AND CURE
The Debtors are parties to thousands of executory contracts
and non-residential real property leases. On or before 17 days prior to the
Voting Deadline, the Debtors will File a schedule of such contracts and leases
that they intend to assume or assign to another Debtor, along with proposed cure
amounts that will be paid by the Reorganized Debtors (the "Assumption
Schedule"). Within one business day following the Filing of the Assumption
Schedule, the Debtors will serve the Assumption Schedule on the non-debtor
parties to the contracts and leases set forth on the Assumption Schedule, the
Official Committee and the Informal Vendor Debt Committee. Any party to a
contract or lease who objects to the listed cure amounts must File and serve an
objection on counsel no later than thirty (30) days after the Debtors File and
serve the Assumption Schedule. Failure to File and serve a timely objection
shall be deemed consent to the cure amounts listed on the Assumption Schedule.
Any cure amounts shall be the responsibility of Cricket.
Any monetary amount by which each executory contract and
unexpired lease to be assumed pursuant to the Plan is in default, if any, will
be satisfied, pursuant to Section 365(b)(1) of the Bankruptcy Code, at the
option of the applicable Reorganized Debtor: (a) by payment of the default
amount in Cash on the Effective Date or (b) on such other terms as are agreed to
by the parties to such executory contract or unexpired lease. All such payments
will be made by Reorganized Cricket. If there is a dispute regarding: (i) the
amount of any cure payment; (ii) the ability of a Reorganized Debtor to provide
"adequate assurance of future performance" (within the meaning of Section 365 of
the Bankruptcy Code) under the contract or lease to be assumed or assigned; or
(iii) any other matter pertaining to assumption, the cure payments required by
Section 365(b)(1) of the Bankruptcy Code will be made following the entry of a
Final Order resolving the dispute and approving the assumption.
The Confirmation Order will constitute an Order of the Court
approving the assumptions described on the Assumption Schedule, pursuant to
Section 365 of the Bankruptcy Code, as of the Effective Date.
Any executory contract or lease not listed on the Assumption
Schedule or that is not the subject of a motion to assume that is pending on the
Confirmation Date shall be deemed rejected as of the Confirmation Date. The
Debtors reserve the right to amend the Assumption Schedule at or prior to the
Confirmation Hearing. If the Debtors add a contract or lease to the Assumption
Schedule after the Assumption Schedule is originally Filed (as described above),
the Debtor party to the applicable contract or lease shall serve the non-Debtor
party to such contract or lease with notice (a) that the contract or lease has
been added to the Assumption Schedule and (b) of the Debtor's proposed cure
amount (the "Amended Assumption Schedule Notice"). The non-Debtor party shall
have 30 days after service of the Amended Assumption Schedule Notice to File and
serve an objection to the cure amount. To the extent the parties have a dispute
with respect to the cure amount, the Debtors shall create a reserve for the full
amount of the cure amount pending resolution of such dispute (either by
stipulation or court order).
2. REJECTION AND DAMAGES
On or before 17 days prior to the Voting Deadline, the Debtors
will File a schedule of executory contracts and non-residential real property
leases that they intend to reject (the "Rejection Schedule"). Within one
business day following the Filing of the Rejection Schedule, the Debtors will
serve the Rejection Schedule on the non-debtor parties to the
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contracts and leases, the Official Committee and the Informal Vendor Debt
Committee. The Rejection Schedule will indicate those contracts and leases that
will be rejected as of the Confirmation Date, and which will be rejected on or
before the Effective Date. The Debtors reserve the right to amend the Rejection
Schedule at or prior to the Confirmation Hearing. All Claims for damages arising
from the rejection of executory contracts or unexpired leases must be Filed with
the Court in accordance with the terms of the order authorizing such rejection,
or, if not rejected by separate order, within sixty (60) days from the entry of
the Confirmation Order. Any Claims not Filed within such time will be forever
barred from assertion against the Debtors, the Estates, the Reorganized Debtors
and the Leap Creditor Trust, unless a stipulation has been entered into with
respect to the rejection of such executory contract or unexpired lease by the
applicable Debtor and non-Debtor party, with the approval of the Official
Committee or the Leap Creditor Trust Trustee, as applicable, for executory
contracts and unexpired leases to which Leap is a party or with the approval of
the Informal Vendor Debt Committee for all other executory contracts and
unexpired leases. Each of the Allowed Claims arising from the rejection of
executory contracts or unexpired leases shall be treated as a General Unsecured
Claim of the applicable Debtor that was party to such contract or lease.
Whether or not listed on the Rejection Schedule, any executory
contract or lease not listed on the Assumption Schedule or that is not the
subject of a motion to assume that is pending on the Confirmation Date shall be
deemed rejected as of the Confirmation Date. The Confirmation Order shall
constitute an Order of the Court approving such rejections described herein,
pursuant to Section 365 of the Bankruptcy Code.
E. PARTIES IN INTEREST AND PROFESSIONALS
1. THE DEBTORS' PROFESSIONALS
During the course of the Chapter 11 Cases, the Court has
approved or will be asked to approve the Debtors' retention of the following
professionals to advise the Debtors in a variety of areas: Latham & Watkins LLP
(bankruptcy counsel) and UBS Securities LLC (the Debtors' financial advisor).
Moreover, pre- and postpetition the Debtors investigated the potential of
obtaining a third party equity investment. At the request of the Informal Vendor
Debt Committee, the Debtors [intend to file/have filed] an application for
Cricket to retain an investment banker to continue the Debtors' efforts to
solicit new equity investments from third parties and to evaluate proposals
regarding the same.
2. THE COMMITTEES AND THEIR PROFESSIONALS
On April 25, 2003, the United States Trustee for the Southern
District of California, pursuant to Section 1102 of the Bankruptcy Code,
appointed the Official Committee to represent the interests of all holders of
unsecured claims in Leap's Chapter 11 Case. The Official Committee currently
consists of the following creditors: Goldman Sachs & Co., Aspen Advisors LLC,
QUALCOMM Inc., Aquitania Partners, LP, Royal Bank of Canada and US Bank National
Assoc.
The Official Committee retained Kramer Levin Naftalis &
Frankel LLP and Irell & Manella as legal counsel and Chanin Capital Partners,
LLC as financial advisors. The Court has entered an order approving the
foregoing retentions. The Official Committee has employed no other professionals
during the pendency of the Chapter 11 Cases.
The Informal Vendor Debt Committee retained Andrews & Kurth
LLP and Pyle Sims Duncan & Stevenson as legal counsel, Goldberg, Godles, Wiener
& Wright as special FCC counsel, and Communications Technology Advisors (CTA),
as financial advisors.
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SECTION VI.
THE FUTURE BUSINESS OF REORGANIZED DEBTORS
A. CAPITALIZATION AND STRUCTURE OF REORGANIZED DEBTORS
Except as otherwise provided in any provision of the Plan, on
the Effective Date, the Leap Creditor Trust Assets shall vest in the Leap
Creditor Trust and all property of the other Estates will vest in the
Reorganized Debtors, as applicable, free and clear of all Liens, Claims,
encumbrances and Interests. From and after the Effective Date, each Reorganized
Debtor may operate its business and use, acquire and dispose of property and
settle and compromise Claims or Interests arising post-Confirmation without
supervision by the Court and free of any restrictions of the Bankruptcy Code,
the Bankruptcy Rules or the Local Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan and the Confirmation Order.
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the Reorganized Debtors to make payments pursuant
to the Plan will be obtained from the Reorganized Debtors' Cash balances or
borrowings and the operations of the Reorganized Debtors. Notwithstanding the
foregoing, all Cash necessary for the Leap Creditor Trust Trustee to make
payments pursuant to the Plan will be obtained from Leap Creditor Trust Assets.
In sum, the Plan provides for a reorganization of the Debtors
under Reorganized Leap. Specifically, the means of executing and implementing
the Plan are as follows:
On the Effective Date, (i) the Old License Holding Company
Common Stock will be cancelled and each Reorganized License Holding Company will
issue to Reorganized Leap 100% of the issued and outstanding shares of New
License Holding Company Common Stock, (ii) the Old Other Subsidiary Common Stock
will be cancelled and each Reorganized Other Subsidiary will issue to
Reorganized Leap 100% of the issued and outstanding shares of New Other
Subsidiary Common Stock, and (iii) the Old Property Holding Company Common Stock
will be cancelled and each Reorganized Property Holding Company will issue to
Reorganized Cricket 100% of the issued and outstanding shares of New Property
Holding Company Common Stock.
Also on the Effective Date, (i) the Old Leap Common Stock will
be cancelled, (ii) Reorganized Leap will issue and contribute 96.5% of the
issued and outstanding shares of New Leap Common Stock to CCH, (iii) Reorganized
Leap will contribute all of the New License Holding Company Common Stock to CCH,
and (iv) CCH will contribute all of such New Leap Common Stock and New License
Company Common Stock to Reorganized Cricket. Following such contributions, on
the Effective Date, CCH will be merged with and into Reorganized Cricket in a
"tax-free" reorganization in compliance with Section 368(a)(1)(G) of the
Internal Revenue Code, pursuant to which the Old CCH Common Stock will be
converted into 100% of the issued and outstanding shares of New Cricket Common
Stock. As a result, Reorganized Leap will own 100% of the issued and outstanding
shares of Reorganized Cricket and each of the Reorganized Other Subsidiaries,
and Reorganized Cricket will own 100% of the issued and outstanding shares of
each of the Reorganized License Holding Companies, 100% of the issued and
outstanding shares of each of the Reorganized Property Holding Companies and,
temporarily until the distribution thereof to the Holders of Old Vendor Debt
Claims, 96.5% of the New Leap Common Stock.
On the Effective Date, or as soon thereafter as practicable,
the Holders of Old Vendor Debt Claims will receive from Cricket, on a Pro Rata
basis, 96.5% of the issued and outstanding shares of New Leap Common Stock and
New Senior Notes aggregating $350 million in principal amount.
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On the Initial Distribution Date, and notwithstanding the
occurrence of the Effective Date: (a) Holders of Allowed Leap General Unsecured
Claims, including the Holders of Old Leap Notes, will receive, on a Pro Rata
basis, beneficial interests in the Leap Creditor Trust; (b) the Leap Creditor
Trust will receive the Leap General Unsecured Claim Cash Distribution
(approximately $80.0 million, minus a reserve in the approximate amount of $5
million for Administrative Claims against Leap, the actual amount of which may
vary materially; the amount initially withheld in reserve for Administrative
Claims and Priority Claims will be subject to negotiation between the Debtors
and the Official Committee); and (c) Holders of Allowed 12 1/2% Senior Secured
Claims will receive, on a Pro Rata basis, the 12 1/2% Senior Secured Claim
Distribution (approximately $200,000).
In addition, on the later of the Effective Date and the
Initial Distribution Date, Reorganized Leap will issue and transfer to the Leap
Creditor Trust: (a) 3.5% of the issued and outstanding shares of New Leap Common
Stock as of the Effective Date for Distribution to the Leap General Unsecured
Creditors and (b) the Leap Creditor Trust Assets (comprised of other assets that
have a value estimated to be approximately $30.0 million-$50.0 million(5)) for
subsequent sale and Distribution of the proceeds to the Leap General Unsecured
Creditors. The Leap Creditor Trust Trustee will be selected by the Official
Committee, and the identity of the Leap Creditor Trust Trustee will be submitted
to the Court no later than 10 days prior to the Confirmation Hearing. The "Leap
Creditor Trust Assets" to be transferred to the trust are the following assets:
(i) the PCS licenses in the Bemidji, Minnesota (10 MHz);
Brainerd, Minnesota (10 MHz); Escanaba, Michigan (10
MHz); Pueblo, Colorado (10 MHz); and Salem, Oregon
(10 MHz) BTAs and any cause(s) of action resulting
from the proposed sale thereof pursuant to a
previously executed agreement;
(ii) Leap's stake in the Idaho joint venture with NTCH;
(iii) any Leap cause(s) of action listed in Leap's
Schedules, including the cause of action related to
the Endesa note receivable, together with any Leap
causes of action that are not otherwise released
under the Plan and that do not have, or could
reasonably be expected to have, a material adverse
effect on the Debtors or the Reorganized Debtors or
their respective businesses or prospects, as
reasonably determined by the Informal Vendor Debt
Committee in accordance with the Plan;
(iv) any cause of action that is part of the Leap Estate
arising from Bankruptcy Code sections 542, 543, 544,
545, 547, 548, 549 or 550, that is not otherwise
released under the Plan and that is not against a
potential defendant that is a vendor, customer or
other party with whom the Debtors or the Reorganized
Debtors have, or reasonably expect to have, a
material business relationship, as reasonably
determined by the Informal Vendor Debt Committee in
accordance with the Plan;
(v) any and all Tax Refunds that are to be delivered to
the Leap Creditor Trust in accordance with the Plan;
- ------------------------
(5) This range has been estimated by the Debtors based on prior testimony in
the Chapter 11 Cases that these assets had an aggregate value of
approximately $30 million, which the Debtors then increased to reflect what
the Debtors believe is an appropriate range of values for these assets
including the Endesa note receivable.
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(vi) Cash to be paid by Cricket in an amount equal to the
Leap Deposits (approximately $2.5 million, but if all
such deposits are assumed by the Reorganized Debtors
and corresponding amounts paid by Cricket, the
maximum amount would be approximately $3.3 million);
and
(vii) the PCS licenses in the Bozeman, Montana (20 MHz);
Casper, Wyoming (15 MHz); Lewiston, Idaho (15 MHz);
and Redding, California (15 MHz) BTAs and any
cause(s) of action resulting from the proposed sale
thereof pursuant to a previously executed agreement.
IN ACCORDANCE WITH THE NEGOTIATED SETTLEMENT BETWEEN THE LEAP INFORMAL
NOTEHOLDER COMMITTEE AND THE INFORMAL VENDOR DEBT COMMITTEE LEADING TO THE PLAN,
ALL OTHER ASSETS OF LEAP THAT ARE NOT SPECIFICALLY LISTED ABOVE AND DEFINED AS
LEAP CREDITOR TRUST ASSETS IN THE PLAN WILL NOT BE TRANSFERRED TO THE LEAP
CREDITOR TRUST AND WILL REMAIN WITH REORGANIZED LEAP, INCLUDING FOR EXAMPLE
ONLY, OFFICE FURNITURE, FIXTURES, EQUIPMENT AND SUPPLIES; LEAP INTELLECTUAL
PROPERTY, INCLUDING THE "LEAP" TRADEMARK; RETIREMENT PLAN ASSETS; AND AN
INTER-COMPANY PAYABLE FROM CRICKET WHICH IS BEING RELEASED UNDER THE PLAN.
Following the Effective Date, after the satisfaction of all
Allowed Administrative Claims and Allowed Priority Claims against Leap and the
resolution of all Disputed Administrative Claims and Disputed Priority Claims
against Leap, any remaining Cash held in reserve by Leap will be distributed to
the Leap Creditor Trust. Notwithstanding anything set forth herein, if any Leap
Creditor Trust Assets are converted to Cash on or after the Initial Distribution
Date but prior to the Effective Date, the Cash proceeds shall be transferred to
the Leap Creditor Trust as soon as practicable upon such monetization,
notwithstanding the fact that the Effective Date has not occurred.
Holders of Old Leap Common Stock will receive nothing on
account of their Interests.
Subject to the provisions of the Plan, and except as otherwise
provided herein, property to be distributed hereunder to each Unimpaired Class
shall be distributed on the later of (i) the Effective Date and (ii) the date on
which the distribution to a Holder of a Claim in such Class would have been due
and payable in the ordinary course of business or under the terms of the Claim
in the absence of the Chapter 11 Cases. Notwithstanding any other provision of
the Plan, the Debtors, the Reorganized Debtors and the Leap Creditor Trust shall
not be obligated to make any distribution with respect to any unclassified
Claim, or any Allowed Claim, other than those in the hands of the Holders shown
on the books and records of the Debtors as of the Confirmation Hearing unless
otherwise identified on a Filed proof of claim.
FOR AN ILLUSTRATION THAT DEPICTS THE GENERAL CORPORATE
STRUCTURE OF THE DEBTORS BEFORE AND AFTER THE REORGANIZATION UNDER THE PLAN AND
THAT SUMMARIZES THE DISTRIBUTIONS UNDER THE PLAN TO LEAP'S GENERAL UNSECURED
CREDITORS AND THE HOLDERS OF OLD VENDOR DEBT CLAIMS, PLEASE SEE THE CHARTS
ATTACHED HERETO AS EXHIBIT O.
B. CERTAIN INFORMATION REGARDING THE VALUES OF FCC WIRELESS LICENSES
One of Leap's stockholders, MCG PCS, Inc., has asserted that
the Debtors could fully repay all of their debt and still return substantial
value to Leap's stockholders. The Debtors strongly disagree with this assertion.
In attempting to advance its argument, MCG PCS, Inc. has raised questions about
the values of one of the principal assets held by the Debtors, their FCC
wireless licenses. Information concerning the value of the Debtors' wireless
licenses (much of which is presented in greater detail elsewhere in this
Disclosure Statement and the exhibits hereto) is set forth below.
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The Debtors' wireless licenses are not mass commodities
purchased and sold at a fixed price. Instead, there is a limited demand for
these licenses and there is no formal trading market or quotation system for
proposed license sales. Over the last year, only a limited number of license
sale transactions have occurred.
Estimates of the value of the Debtors' wireless licenses may
span a fairly broad range depending on the time at which the licenses are valued
and the assumptions made in valuing the licenses. For example, a valuation that
considers a forced sale of the Debtors' licenses over a period of one year or
less would be substantially lower than a valuation that assumes the Debtors'
business was continuing successfully and the Debtors could, if they chose, sell
all or a portion of their licenses over a multi-year period in orderly sales
between a willing buyer and a willing seller. However, even though different
assumptions and valuation techniques may produce a broad range of values for the
Debtors' licenses, there are no reasonable prospects for any return to Leap's
stockholders because of the significant outstanding debt of the Debtors.
Each of the Debtors' wireless licenses has been granted by the
FCC and any transfer of a license requires the prior approval of the FCC. Each
wireless license covers a specific amount of spectrum or bandwidth (usually 10
megahertz, or MHz, 15 MHz or 30 MHz) for service to a particular geographic
region (one of 493 basic trading areas, or BTAs, categorized by the FCC).
Generally, there are at least six separate PCS wireless licenses covering each
BTA. Wireless licenses covering large metropolitan areas such as New York or
Chicago typically are substantially more valuable than licenses covering smaller
cities or rural areas such as Roswell, New Mexico or Casper, Wyoming. The values
of PCS wireless licenses generally have fluctuated dramatically over the past
several years. In addition, most of the Debtors' wireless licenses were issued
under FCC regulations designed to assist certain small businesses (known as
"designated entities") in the development of their wireless businesses (i.e.,
C-Block and F-Block licenses). These licenses may not be transferred to anyone
other than another "designated entity" until certain buildout requirements have
been met.
The Debtors have presented information about the values of
their wireless licenses in this Disclosure Statement and other filings in
connection with their bankruptcy proceedings:
- In the Schedules and Statements of Financial Affairs filed
with the United States Trustee, the Debtors have presented
the net book values of their licenses. The net book value
represents the costs of acquiring such licenses less
accumulated depreciation.
- In their liquidation analyses attached to this Disclosure
Statement as Exhibit F, the Debtors have presented their
best estimates of the liquidation values of their wireless
licenses, assuming that they were sold in a
distressed-sale environment over a 12-month period.
- The Debtors' financial advisor, UBS, performed a going
concern enterprise valuation for the entire business of
Reorganized Leap as of an assumed Effective Date of
September 30, 2003, which is attached as Exhibit M. The
valuation establishes a range of estimated values for
Reorganized Leap as an operating business, which reflects
the ongoing use of its assets including its wireless
licenses. (The UBS going concern enterprise valuation did
not reflect the value of the wireless licenses held by
Leap or held by Leap subsidiaries whose stock has been
pledged as security to specific creditors other than the
Old Vendor Debt, and that will not be retained by
Reorganized Leap.)
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The following table summarizes the results of the information
described above. Substantially all of the Debtors' wireless licenses are owned
by direct subsidiaries of Leap, referred to as the License Holding Companies.
The stock of most of the License Holding Companies and their wireless licenses
are used in the Cricket business and/or pledged for the benefit of the Holders
of Old Vendor Debt. Accordingly, these licenses are included as "Cricket
Licenses" in the table below (and will remain under the control of Reorganized
Leap following the Effective Date of the Plan).
Going Concern
Net Book Value (1) Liquidation Value (2) Enterprise Value (3)
- ---------------------------------------------------------------------------------------------------------------
Cricket Licenses $723.6 million $258.2 million - N/A
$336.9 million
- ---------------------------------------------------------------------------------------------------------------
Leap Licenses $ 4.6 million (4) $ 4.8 million -
$ 6.2 million N/A
- ---------------------------------------------------------------------------------------------------------------
Going Concern N/A N/A $560 million -
$683 million
- ---------------------------------------------------------------------------------------------------------------
- -----------------------
(1) Amounts shown reflect the costs of acquiring the
licenses, net of accumulated depreciation.
(2) Amounts shown reflect the repayment of the
outstanding purchase money secured debt attributable to certain of these
licenses as of the Petition Date, and exclude all wind-down costs and
transaction costs that would likely be associated with a liquidation of all of
such licenses.
(3) See Exhibit M attached hereto. This going concern
enterprise valuation, performed by UBS as of July 17, 2003, is for the entire
business of Reorganized Leap as a going concern, including the use of its assets
(including wireless licenses) and assumes an Effective Date under the Plan of
September 30, 2003. This valuation is subject to the assumptions, limitations
and qualifications described in Exhibit M.
(4) Excludes the net book value of three licenses held by
Cricket Licensee XI, Inc., a wholly owned subsidiary of Leap. The stock of
Cricket Licensee XI, Inc. has been pledged to secure the GLH Note.
S&P APPRAISALS
Leap and its subsidiaries are required to prepare financial
statements in accordance with generally accepted accounting principles (GAAP),
including Statement of Financial Accounting Standard No. 142 "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 142 requires wireless licenses
classified as indefinite-lived intangible assets to be tested for impairment as
of January 1, 2002 and at least annually thereafter. In connection with the
preparation of its consolidated financial statements, Leap previously obtained
valuations of the entire portfolio of wireless licenses held by Leap and the
License Holding Companies from Standard & Poor's Corporate Value Consulting, an
independent third party appraiser, as of June 30, 2002 and December 31, 2002.
The independent valuations of the portfolio of wireless licenses were made on
the assumption that the existing business of Leap and its subsidiaries would be
ongoing and that an orderly sale of the licenses could be achieved, and assumed
that the wireless licenses would change hands between willing buyers and willing
sellers, neither being under any compulsion to buy or to sell.
Standard & Poor's utilized the "market comparable method" to
estimate the value of the wireless licenses. This method indicates the fair
value of an asset by comparing it to
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publicly available information regarding the pricing of similar assets,
generally through transactions, and applying appropriate discounts or premiums
based upon subsequent market and industry developments. Standard & Poor's
developed a range of estimates of values per megahertz/pop (a license valuation
metric frequently used in the wireless telecommunications industry) using
several different analytical processes, including references to the median and
mean successful bids of comparable licenses auctioned by the FCC in Auction 35,
less a 30% discount, and (for the December valuation only) the average selling
price of wireless licenses in a December 19, 2002 acquisition of wireless
licenses by Verizon Wireless, less a 30% discount. Based on the assumptions
described above, Standard & Poor's valuation report indicated that the range of
values of the wireless license portfolio was between $906.1 million and $1,136.4
million as of June 30, 2002. Based on the assumptions described above, Standard
& Poor's second valuation report indicated that the range of values of the
wireless license portfolio was between $860.0 million and $1,246.3 million as of
December 31, 2002.
The Debtors have furnished this information from the Standard
& Poor's valuation reports as additional data for Holders of Claims and
Interests to consider in evaluating the Plan. Management procured the valuation
reports solely to obtain information the Debtors needed to prepare financial
statements in accordance with SFAS No. 142 and generally accepted accounting
principles (GAAP). THE DEBTORS DO NOT BELIEVE THEY COULD GENERATE PROCEEDS AT
ALL COMPARABLE TO THE AMOUNTS REFLECTED IN THE STANDARD & POOR'S VALUATION
REPORTS IF THE DEBTORS SOLD THEIR WIRELESS LICENSE PORTFOLIO AT THIS TIME.
C. COMPOSITION OF MANAGEMENT AND THE DIRECTORS OF REORGANIZED DEBTORS
The Informal Vendor Debt Committee has informed the Debtors
that they expect the existing senior management team to continue as the
executive officers and senior management of the Debtors through the Effective
Date of the Plan, and that following the Effective Date, these officers will
serve at the pleasure of the Board of Directors of Reorganized Leap. The names,
titles and current annual salary and target annual bonus for the existing senior
management team are set forth below:
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TARGET ANNUAL BONUS AS A
NAME TITLE ANNUAL SALARY PERCENTAGE OF ANNUAL SALARY
- -----------------------------------------------------------------------------------------------------------------
Harvey P. White Chairman and Chief $502,125 80%
Executive Officer
- -----------------------------------------------------------------------------------------------------------------
Susan G. Swenson President and Chief $386,250 80%
Operating Officer
- -----------------------------------------------------------------------------------------------------------------
S. Douglas Hutcheson Senior Vice President and $298,700 50%
Chief Financial Officer
- -----------------------------------------------------------------------------------------------------------------
Leonard C. Stephens Senior Vice President, $272,950 50%
Human Resources
- -----------------------------------------------------------------------------------------------------------------
David B. Davis Senior Vice President, $242,050 50%
Operations
- -----------------------------------------------------------------------------------------------------------------
Glenn Umetsu Senior Vice President, $270,000 50%
Eng., Ops. and Launch
- -----------------------------------------------------------------------------------------------------------------
Robert J. Irving Senior Vice President, $240,000 50%
General Counsel
- -----------------------------------------------------------------------------------------------------------------
The senior management executives also receive customary
employee benefits, including life insurance, medical, disability and other
benefits. On May 15, 2003, the Court entered an Order Authorizing Implementation
of Severance Agreements, authorizing Cricket to implement severance agreements
with each of the senior management executives (an application to implement a
severance agreement with Mr. Irving is pending before the Court). Pursuant to
the Severance Agreements, if a senior management executive is terminated without
cause by Cricket within one year after the Effective Date of the Plan, or during
the same period such executive terminates his or her employment with Cricket for
"good reason" (e.g., material diminution in employment duties, reduction in
salary or material reduction in benefits, etc.) as provided in more detail in
the form of Severance Agreement filed with the Court, then such executive is
entitled to (a) nine months of such executive's annual base salary at the date
of termination, and (b) COBRA benefits paid by the Debtors for nine months.
The directors of each of the Debtors will continue to serve in
such capacities until and through the Effective Date. As of the Effective Date,
the new board of directors of Reorganized Leap initially shall consist of seven
directors to be designated by the Informal Vendor Debt Committee. As of the date
hereof, the Informal Vendor Debt Committee does not yet know who will be serving
as directors of Reorganized Leap or any of the other Reorganized Debtors after
the Effective Date. However, the Reorganized Debtors will identify those
individuals who initially will serve as directors of the Reorganized Debtors
from and after the Effective Date in a Schedule filed with the Court at least 5
days prior to the Confirmation Hearing.
A majority of the Board of Directors of Reorganized Leap shall
select the Board of Directors and senior management of the other Reorganized
Debtors.
Reorganized Leap may authorize appropriate compensation and
bonus plans for senior management employed by the Reorganized Debtors
post-Effective Date. After the Effective Date, Reorganized Leap may adopt a new
incentive plan for the grant to officers, employees and directors of the Company
and its subsidiaries of options to acquire shares of New Leap Common Stock. The
options may be based upon a vesting schedule and any other performance criteria
that may be structured by the Board of Directors of Reorganized Leap.
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D. ISSUANCE OF NEW SENIOR NOTES AND NEW LEAP COMMON STOCK
On the Effective Date, or as soon thereafter as practicable,
(a) Reorganized Leap will issue and contribute to CCH
96.5% of the New Leap Common Stock, and CCH will
contribute such stock to Reorganized Cricket;
(b) the Holders of Old Vendor Debt will receive from
Reorganized Cricket, on a Pro Rata basis, 96.5% of
the New Leap Common Stock and New Senior Notes issued
by Reorganized Cricket aggregating $350 million in
principal amount. For a more detailed description of
the New Senior Notes, please refer to Exhibit K
attached hereto; and
(c) Leap will deliver to the Leap Creditor Trust, for
Distribution to the Holders of General Unsecured
Claims against Leap, on a Pro Rata basis, 3.5% of the
issued and outstanding shares of New Leap Common
Stock.
The issuance of the New Leap Common Stock and New Senior Notes
under the Plan will be exempt from the registration requirements under the
Securities Act of 1933, as amended, by virtue of the exemption from registration
provided under Section 1145 of the Bankruptcy Code.
The Debtors expect that the New Leap Common Stock will not be
listed for trading on any national securities exchange, automated quotation
service or over-the-counter trading markets following the Effective Date. The
Debtors also expect that Reorganized Leap will not be a public company that
files reports under Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), following the Effective Date, and the
Debtors expect to take all actions necessary or appropriate to effect the
deregistration of the Old Leap Common Stock under the Exchange Act. However, the
Debtors reserve the right to cause Reorganized Leap to be a public company
following the Effective Date that files reports under Section 13(a) or 15(d) of
the Exchange Act if required under the rules promulgated under the Exchange Act
or if the Debtors in the exercise of their business judgment, with the consent
of the Informal Vendor Debt Committee, deem it to be prudent to do so, and the
costs related thereto shall be paid with funds from Cricket or Reorganized Leap.
If prior to the Distribution of all of the New Leap Common
Stock to the Leap General Unsecured Creditors any matter is submitted to the
stockholders of Reorganized Leap for their approval at a meeting of stockholders
(or by written consent), the Leap Creditor Trust Trustee will vote (or grant its
consent to) the shares of New Leap Common Stock not yet Distributed to the Leap
General Unsecured Creditors in the same relative proportions as the aggregate
affirmative and negative votes cast (or consents granted) by all other
stockholders properly voting on (or consenting to) such matter.
SECTION VII.
SUMMARY OF THE
PLAN OF REORGANIZATION
A. INTRODUCTION
The Plan is the product of diligent efforts and intense
negotiations by the Debtors, the Informal Vendor Debt Committee, the Informal
Noteholder Committee and the Official Committee to formulate a plan that
provides for a fair allocation of the Debtors' assets in an orderly manner,
consistent with the mandates of the Bankruptcy Code and other applicable law.
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The Debtors believe that Confirmation of the Plan is critical
to the Debtors' continued survival, and that the Plan provides the best
opportunity for maximum recoveries to the Debtors' creditors. The Debtors
believe, and will demonstrate to the Court, that the Holders of Claims against
and Interests in the Debtors will receive significantly more value under the
Plan than any available alternative.
B. CLASSIFICATION AND TREATMENT OF ADMINISTRATIVE CLAIMS,
CLAIMS AND INTERESTS UNDER THE PLAN
Only administrative expenses, claims and interests that are
"allowed" may receive distributions under a chapter 11 plan. An administrative
claim, claim or interest becomes "allowed" when the Court determines that the
administrative claim, claim or interest is a valid obligation of a debtor,
including the amount. Section 502(a) of the Bankruptcy Code provides that a
timely filed administrative expense claim, claim or interest is "allowed"
automatically unless the debtor or another party in interest objects. Section
502(b) of the Bankruptcy Code, however, provides that certain claims may not be
"allowed" in bankruptcy even if a proof of claim is filed. Such claims include,
without limitation, claims that are unenforceable under a governing agreement or
applicable non-bankruptcy law, claims for unmatured interest, claims for certain
services that exceed their reasonable value, lease and employment contract
rejection damage claims in excess of specified amounts and late-filed claims. In
addition, Rule 3003(c)(2) of the Federal Rules of Bankruptcy Procedure prohibits
the allowance of any claim or interest that either is not listed on the debtor's
schedules or is listed as disputed, contingent or unliquidated, if the holder of
such claim or interest has not timely filed a proof of claim or interest.
The Bankruptcy Code also requires that, for the purposes of
treatment and voting, a chapter 11 plan divide different types of claims and
interests into separate classes, based upon their legal nature. Claims of a
substantially similar nature generally are classified together, as are interests
of a substantially similar nature. As a single entity may hold multiple claims
and/or interests that give rise to different legal rights, such a holder may be
a member of multiple classes under a plan.
Under a chapter 11 plan, the separate classes of claims and
interests must be designated as either "impaired" or "unimpaired." If a class of
claims or interests is "impaired" under a plan, the Bankruptcy Code affords
certain rights to the holders in such class, including the right to vote on the
plan (with the exception of classes of claims and interests that receive no
distributions under the plan, and which therefore are deemed to have rejected
the plan), and the right to receive an amount under the plan that is no less
than the value that claim holder would receive in a chapter 7 liquidation. Under
Section 1124 of the Bankruptcy Code, a class is "impaired" if the legal,
equitable or contractual rights attaching to the claims or interests of that
class are modified, other than by curing defaults and reinstating maturity or by
payment in full in Cash. Typically, this means that the holder of an unimpaired
claim will receive under the plan payment in full, in Cash, with prepetition
interest to the extent permitted and provided under the governing agreement
between the parties (if applicable) or applicable non-bankruptcy law, and the
remainder of the debtor's obligations, if any, will be performed as they become
due in accordance with their terms. Thus, other than the right to accelerate the
debtor's obligations, the holder of an unimpaired claim will be placed in the
position in which it would have been if the debtor had not commenced a chapter
11 case.
Consistent with these requirements, the Plan divides the
Claims against, and Interests in, the Debtors into separate Classes. The
following is a designation of the Classes of Claims and Interests under the
Plan. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims have not been classified and are
excluded from the following Classes. A Claim or Interest is classified in a
particular Class only to the extent that the Claim or Interest qualifies within
the description of that Class, and is classified in
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another Class or Classes to the extent that any remainder of the Claim or
Interest qualifies within the description of such other Class or Classes. A
Claim or Interest is classified in a particular Class only to the extent that
the Claim or Interest is an Allowed Claim or Allowed Interest in that Class and
has not been paid, released or otherwise satisfied before the Effective Date; a
Claim or Interest which is not an Allowed Claim or Allowed Interest is not in
any Class. A Disputed Claim or Disputed Interest, to the extent that it
subsequently becomes an Allowed Claim or Allowed Interest, shall be included in
the Class for which it would have qualified had it not been disputed.
Notwithstanding anything to the contrary contained in the Plan, no distribution
shall be made on account of any Claim or Interest which is not an Allowed Claim
or an Allowed Interest.
A chart summarizing the treatment of Claims and Interests
under the Plan is set forth at page vii, supra.
For purposes of computing distributions under the Plan,
Allowed Claims do not include postpetition interest unless otherwise specified
in the Plan.
If the Plan is confirmed, except for distributions made on the
Initial Distribution Date and distributions in respect of Leap Creditor Trust
Assets that are monetized after the Initial Distribution Date but prior to the
Effective Date and except for Disputed Claims, distributions will be deemed made
on the Effective Date if made on the Effective Date or as soon as practicable
thereafter. Distributions on accounts of Claims that become Allowed Claims after
the Effective Date will be made pursuant to Section 8.02 of the Plan (relating
to timing and calculation of amounts to be distributed under the Plan) and
Section 8.05 of the Plan (relating to distributions on account of Disputed
Claims once they are allowed).
1. UNCLASSIFIED - ADMINISTRATIVE CLAIMS
Administrative Claims include the costs and expenses of
administration of the Chapter 11 Cases of a kind specified in Section 503(b) of
the Bankruptcy Code and entitled to priority under Section 507(a)(1) of the
Bankruptcy Code. Such costs include any actual, necessary costs and expenses of
operating the Debtors' businesses and preserving the Debtors' Estates, any
indebtedness or obligations incurred or assumed by the Debtors in connection
with the conduct of their businesses, all compensation and reimbursement of
expenses to the extent Allowed by the Court pursuant to Section 330 or Section
503 of the Bankruptcy Code, and any fees or charges assessed against the
Debtors' Estates pursuant to Section 1930, Chapter 123 of Title 28 of the United
States Code.
Pursuant to the Plan, Allowed Administrative Claims (a) will
be paid Cash equal to the full unpaid portion of the Allowed Administrative
Claim on the later of the Effective Date and the date on which such
Administrative Claim becomes an Allowed Claim, or as soon thereafter as
practicable, or (b) will receive such other treatment as to which the applicable
Debtor and the holder of an Allowed Administrative Claim shall agree in writing.
The Debtors anticipate that, with the exception noted below,
most Administrative Expenses will be paid as they come due during the Chapter 11
Cases, and that the Administrative Claims to be paid on or after the Effective
Date will mainly comprise the Allowed fees and expenses incurred by
professionals providing services in the Chapter 11 Cases.
The Debtors estimate that the amount of Allowed Administrative
Claims and Priority Claims under the Bankruptcy Code (the "Effective Date
Payments"), that are unpaid as of the Effective Date, will include the
following: (a) the Debtors', the Informal Vendor Debt Committee's, the Informal
Noteholder Committee's and the Official Committee's professionals' fees
(approximately $10 million, including any success fees to UBS ($3.25 million),
CTA ($2.75 million) and Chanin Capital Partners ($1.5 million); and (b)
severance payments, if any.
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2. UNCLASSIFIED - PRIORITY TAX CLAIMS
Except as otherwise agreed to by Reorganized Debtors and the
applicable taxing agency, Reorganized Debtors, as appropriate, shall pay to each
holder of an Allowed Priority Tax Claim deferred Cash payments, over a period
not exceeding six years from the date of assessment of such Claim, in an
aggregate amount equal to the amount of such Allowed Priority Tax Claim, plus
interest from the Effective Date on the unpaid portion of such Allowed Priority
Tax Claim (without penalty of any kind) at the rate prescribed below. Payment of
the amount of each such Allowed Priority Tax Claim shall be made in equal
semiannual installments payable on June 1 and December 1, with the first
installment due on June 1 or December 1 after the latest of: (a) the Effective
Date; (b) 30 days after the date on which an Order allowing such Priority Tax
Claim becomes a Final Order; and (c) such other time or times as may be agreed
to by the holder of such Claim and the respective Reorganized Debtor. Each
installment shall include interest on the unpaid portion of such Allowed
Priority Tax Claim, without penalty of any kind, at the rate of 8 1/4% per annum
or as otherwise established by the Court; provided, however, that the
Reorganized Debtors, as appropriate, shall have the right to pay any Allowed
Priority Tax Claim, or any remaining balance of such Claim, in full, at any time
on or after the Effective Date, without premium or penalty of any kind.
The Debtors believe that no Allowed Priority Tax Claims exist.
3. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN LEAP
Leap Class 1A - GLH Claim. On the Effective Date, or as soon
as practicable thereafter, the Holder of the Class 1A GLH Claim shall, in full
satisfaction, settlement, release and discharge of and in exchange for such
Secured Claim, receive the GLH Collateral. The Holder of the Allowed Secured
Claim in Class 1A shall be Impaired and entitled to vote to accept or reject the
Plan. The Debtors believe the amount of the Leap Class 1A Claim is approximately
$8,383,941 as of the Petition Date.
Leap Class 1B - 12 1/2% Senior Secured Claim. On the Initial
Distribution Date, or as soon as practicable thereafter, each Holder of a Class
1B 12 1/2% Senior Secured Claim shall receive, in full satisfaction, settlement,
release and discharge of and in exchange for its Claim, on a Pro Rata basis, the
12 1/2% Senior Secured Claim Distribution (approximately $200,000 in the
aggregate). In addition, by order entered by the Court on April 18, 2003, each
Holder of a Class 1B 12 1/2% Senior Secured Claim, received, on a Pro Rata
basis, the Cash in the Senior Notes Pledged Account reflecting the amount of
interest owing as of April 15, 2003. Leap Class 1B is Unimpaired and shall be
deemed to have voted to accept the Plan. The Debtors believe the aggregate
amount of the Leap Class 1B Claims is approximately $200,000 as of the Petition
Date. The holders of Leap's 12 1/2% Senior Notes also hold approximately $224.8
million of General Unsecured Claims which are included in Leap Class 4 - General
Unsecured Claims.
Leap Class 1C - Old Vendor Debt Claim. The Holders of Old
Vendor Debt have secured claims against Leap and its Estate because Leap pledged
the stock of substantially all of the License Holding Companies owned by Leap as
security for the Old Vendor Debt. On the Initial Distribution Date, each Holder
of a Class 1C Old Vendor Debt Claim shall, in full satisfaction, settlement,
release and discharge of and in exchange for its Claim against Leap and its
Estate, receive the benefit of the Intercompany Releases, and on the Effective
Date or as soon as practicable thereafter, on a Pro Rata basis, the Old Vendor
Debt Distribution (constituting in the aggregate 96.5% of the issued and
outstanding shares of New Leap Common Stock and $350.0 million aggregate
principal amount of New Senior Notes). Leap Class 1C is Impaired and shall be
entitled to vote to accept or reject the Plan. The Debtors believe the aggregate
amount of the Leap Class 1C Claims is approximately $1.6 billion as of the
Petition Date (without giving effect to the value of the Collateral pledged by
Leap).
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Leap Class 2A et seq. - Other Secured Claims. Class 2A et seq.
consists of all other Secured Claims against Leap. Leap currently believes that,
as of the Petition Date, Wells Fargo Bank, N.A., Travelers Casualty & Surety Co.
of America and GE Capital Financial held certificates of deposit or money market
funds in the amount of approximately $1.6 million, $0.8 million and $0.9
million, respectively, to secure obligations under letters of credit, surety
bonds and employee credit cards, respectively. Leap expects that the Allowed
Claims of the foregoing Class 2A, 2B and 2C members shall be Reinstated. Leap
Class 2A, 2B and 2C Claims are Unimpaired and shall be deemed to have voted to
accept the Plan.
Although the Debtors do not currently believe that any other
Class 2A et seq. Claim Holders exist, this Class will be further divided into
subclasses designated by letters of the alphabet (CLASS 2D, CLASS 2E, and so
on), so that each Holder of any Secured Claim is in a Class by itself, except to
the extent that there are Secured Claims that are substantially similar to each
other and may be included within a single Class. Each Allowed Secured Claim in
Class 2A et seq. shall, in the discretion of the Debtor with the consent of the
Informal Vendor Debt Committee, receive, in full satisfaction, settlement,
release and discharge of and in exchange for its Claim, any one or a combination
of any of the following: (i) Cash in an amount equal to such Allowed Class 2A et
seq. Claim; (ii) deferred Cash payments totaling at least the Allowed amount of
such Allowed Class 2A et seq. Claim, of a value, as of the Effective Date, of at
least the value of such Holder's interest in the Collateral securing the Allowed
Class 2A et seq. Claim; (iii) the Collateral securing such Holder's Allowed
Class 2A et seq. Claim; (iv) payments or Liens amounting to the indubitable
equivalent of the value of such Holder's interest in the Collateral securing the
Allowed Class 2A et seq. Claim; (v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the Debtor and such Holder shall have
agreed upon in writing. The Debtor will make the foregoing election and provide
notice of such election to the applicable Holder of an Allowed Class 2A et seq.
Claim no later than 14 days prior to the Voting Deadline. To the extent the
Debtor elects clause (i), (ii), (iv), (v) or (vi) above, any liability
associated with such treatment shall be satisfied with funds from Cricket.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
Leap Class 3 - Priority Claims. The Plan provides that unless
otherwise agreed to by Leap and the applicable Holder of a Claim, each Holder of
an Allowed Claim in Class 3 will be paid the Allowed Amount of such Claim in
full in Cash by Leap on or before the later of (i) the Effective Date or as soon
as practicable thereafter, (ii) the date such Claim becomes an Allowed Claim and
(iii) the date that such Claim would be paid in accordance with any terms and
conditions of any agreements or understandings relating thereto between Leap and
the Holder of such Claim. Allowed Claims in Class 3 are Unimpaired under the
Plan and the Holders of Allowed Claims in Class 3 will be deemed to have
accepted the Plan. The Debtors believe the aggregate amount of the Leap Class 3
Claims is approximately $1.5 million as of the Petition Date.
Leap Class 4 - General Unsecured Claims. On the Initial
Distribution Date, each Holder of an Allowed Class 4 Claim shall, in full
satisfaction, settlement, release, discharge of and in exchange for such Claim
(except as otherwise provided in the Plan), receive a Pro Rata distribution of
beneficial interests in the Leap Creditor Trust and the Leap Creditor Trust
shall receive the Leap General Unsecured Claim Cash Distribution (approximately
$80.0 million, minus a reserve in the approximate amount of $5 million for
Administrative Claims against Leap, the actual amount of which may vary
materially; the amount initially withheld in reserve for Administrative Claims
and Priority Claims will be subject to negotiation between the Debtors and the
Official Committee). On the Effective Date, Reorganized Leap shall transfer to
the Leap
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Creditor Trust the Leap General Unsecured Claim Equity Distribution for
Distribution to the Holders of Leap General Unsecured Claims, and the Leap
Creditor Trust Assets (comprised of other assets that have a value estimated to
be approximately $30.0 million-$50.0 million). After the satisfaction of all
Allowed Administrative Claims and Priority Claims against Leap and the
resolution of all Disputed Administrative Claims and Disputed Priority Claims
against Leap, any remaining Cash held in reserve by Leap will be distributed to
the Leap Creditor Trust. If any Leap Creditor Trust Assets are converted to Cash
on or after the Initial Distribution Date but prior to the Effective Date, the
Cash proceeds shall be transferred to the Leap Creditor Trust as soon as
practicable upon such monetization, notwithstanding the fact that the Effective
Date has not occurred. The Leap Creditor Trust Trustee will be selected by the
Official Committee, and the identity of the Leap Creditor Trust Trustee will be
submitted to the Court no later than 10 days prior to the Confirmation Hearing.
Class 4 is Impaired and therefore entitled to vote to accept or reject the Plan.
The Debtors believe the aggregate amount of the Leap Class 4 Claims is
approximately $732 million as of the Petition Date (excluding any General
Unsecured Claims that could be asserted against Leap by the Holders of the Old
Vendor Debt, including any undersecured Claim that could be asserted under the
Bankruptcy Code).
Leap Class 4A - Subordinated General Unsecured Claims of MCG
PCS, Inc. Leap will file a motion with the Court seeking to subordinate the
General Unsecured Claims of MCG PCS, Inc. (which are alleged by MCG PCS to be in
the amount of $39,812,698) because such Claims arose in connection with the
purchase and sale of an equity security of Leap. If MCG PCS's Claims are
subordinated, all Allowed Class 4 Claims against Leap would have to be paid in
full prior to any payments to satisfy the Allowed Class 4A Claims of MCG PCS,
Inc. Because Allowed Class 4 Claims against Leap will not be paid in full under
the Plan, each Holder of an Allowed Class 4A Claim shall not receive any
property or Cash under the Plan on account of such Claims. Class 4A is Impaired
under the Plan and deemed to have voted to reject the Plan. If the Court
determines by Final Order that MCG PCS's General Unsecured Claims should not be
subordinated, MCG PCS and its General Unsecured Claims will be treated as a
member of Leap Class 4 to the extent such Claims are allowed.
Leap Class 5 - Intercompany Claim. Each Holder of an Allowed
Class 5 Claim shall, in full satisfaction, settlement, release, discharge of and
in exchange for such Claim, receive the Intercompany Release on account of such
Claim as of the Initial Distribution Date. Class 5 is Impaired under the Plan
and therefore entitled to vote to accept or reject the Plan.
Leap Class 6 - Old Leap Common Stock and Securities Claims
Against Leap. Each Holder of an Allowed Class 6 Interest shall not receive or
retain any property or Cash under the Plan on account of such Interest. Class 6
is Impaired under the Plan and deemed to have voted to reject the Plan.
Leap Class 7 - Interests of Holders of Old Stock Rights and
All Claims Arising Out of Such Old Stock Rights. Each Holder of an Allowed Class
7 Interest shall not receive or retain any property or Cash under the Plan on
account of such Interest. Class 7 is Impaired under the Plan and deemed to have
voted to reject the Plan.
4. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN CCH
CCH Class 1A - Old Vendor Debt Claim. On the Effective Date,
or as soon as practicable thereafter, each Holder of an Allowed Class 1A Claim
shall, in full satisfaction, settlement, release, discharge of and in exchange
for such Claim, receive a Pro Rata share of the Old Vendor Debt Distribution.
Class 1A is Impaired and entitled to vote to accept or reject the Plan. The
Debtors believe the aggregate amount of the CCH Class 1A Claims is approximately
$1.6 billion as of the Petition Date (without giving effect to the value of the
Collateral pledged by CCH).
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CCH Class 2A et seq. - Other Secured Claims. Class 2A et seq.
consists of all other Secured Claims against CCH. CCH currently does not believe
any such Holders exist.
This Class will be further divided into subclasses designated
by letters of the alphabet (CLASS 2B, CLASS 2C, and so on), so that each Holder
of any Secured Claim is in a Class by itself, except to the extent that there
are Secured Claims that are substantially similar to each other and may be
included within a single Class. Each Allowed Secured Claim in Class 2A et seq.
shall, in the discretion of the Debtor with the consent of the Informal Vendor
Debt Committee, receive, in full satisfaction, settlement, release and discharge
of and in exchange for its Claim, any one or a combination of any of the
following: (i) Cash in an amount equal to such Allowed Class 2A et seq. Claim;
(ii) deferred Cash payments totaling at least the Allowed amount of such Allowed
Class 2A et seq. Claim, of a value, as of the Effective Date, of at least the
value of such Holder's interest in the Collateral securing the Allowed Class 2A
et seq. Claim; (iii) the Collateral securing such Holder's Allowed Class 2A et
seq. Claim; (iv) payments or Liens amounting to the indubitable equivalent of
the value of such Holder's interest in the Collateral securing the Allowed Class
2A et seq. Claim; (v) Reinstatement of such Class 2A et seq. Claim; or (vi) such
other treatment as the Debtor and such Holder shall have agreed upon in writing.
The Debtor will make the foregoing election and provide notice of such election
to the applicable Holder of an Allowed Class 2A et seq. Claim no later than 14
days prior to the Voting Deadline. To the extent the Debtor elects clause (i),
(ii), (iv), (v) or (vi) above, any liability associated with such treatment
shall be satisfied with funds from Cricket.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
CCH Class 3 - Priority Claims. Unless otherwise agreed to by
CCH and the applicable Holder of a Claim, each Holder of an Allowed Claim in
Class 3 will, in full satisfaction, settlement, release, discharge of and in
exchange for such Claim, be paid the Allowed Amount of such Claim in full in
Cash by Reorganized CCH on or before the later of (i) the Effective Date or as
soon as practicable thereafter, (ii) the date such Claim becomes an Allowed
Claim and (iii) the date that such Claim would be paid in accordance with any
terms and conditions of any agreements or understandings relating thereto
between CCH and the Holder of such Claim. Allowed Claims in Class 3 are
Unimpaired under the Plan and the Holders of Allowed Claims in Class 3 will be
deemed to have accepted the Plan. CCH currently does not believe any such
Holders exist.
CCH Class 4 - General Unsecured Claims. Holders of Allowed
Class 4 Claims shall not receive any property or Cash on account of such Claims.
Class 4 is Impaired under the Plan and deemed to have voted to reject the Plan.
The Debtors believe the aggregate amount of the CCH Class 4 Claims is
approximately $732 million as of the Petition Date (excluding any General
Unsecured Claims that could be asserted by the Holders of the Old Vendor Debt,
including any undersecured Claims that could be asserted under the Bankruptcy
Code).
CCH Class 5 - Intercompany Claim. Each Holder of an Allowed
Class 5 Claim shall, in full satisfaction, settlement, release, discharge of and
in exchange for such Claim, receive the Intercompany Release on account of such
Claim as of the Initial Distribution Date. Class 5 is Impaired under the Plan
and therefore entitled to vote to accept or reject the Plan.
CCH Class 6 - Old Common Stock of CCH and Securities Claims.
Holders of Allowed Class 6 Interests shall not receive any property or Cash on
account of such Interests. Class 6 is Impaired and deemed to have voted to
reject the Plan.
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CCH Class 7 - Interests of Holders of Old Stock Rights and All
Claims Arising Out of Such Old Stock Rights. Each Holder of an Allowed Class 7
Interest shall not receive or retain any property or Cash under the Plan on
account of such Interest. Class 7 is Impaired under the Plan and deemed to have
voted to reject the Plan. CCH currently does not believe any such Holders exist.
5. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN CRICKET
Cricket Class 1A - Old Vendor Debt Claim. On the Effective
Date, or as soon as practicable thereafter, each Holder of an Allowed Class 1A
Claim shall, in full satisfaction, settlement, release, discharge of and in
exchange for such Claim, receive from Cricket a Pro Rata share of the Old Vendor
Debt Distribution (constituting in the aggregate 96.5% of the issued and
outstanding shares of New Leap Common Stock and $350.0 million aggregate
principal amount of New Senior Notes). Class 1A is Impaired and entitled to vote
to accept or reject the Plan. The Debtors believe the aggregate amount of the
Cricket Class 1A Claims is approximately $1.6 billion as of the Petition Date
(without giving effect to the value of the Collateral pledged by Cricket). The
Holders of Old Vendor Debt will have unsecured deficiency Claims equal to the
difference between the amount of the Old Vendor Debt and the value of the
Collateral pledged by Cricket (which difference could be $990 million or more)
and which Claims shall be treated separately as Cricket Class 4 General
Unsecured Claims.
Cricket Class 2A et seq. - Other Secured Claims. Class 2A et
seq. consists of all other Secured Claims against Cricket. Cricket believes
that, as of the Petition Date, Wells Fargo Bank, N.A. and Wells Fargo Merchant
Services LLC, and Travelers Casualty and Surety Co. of America, held security
interests in money market funds in the amount of approximately $10.3 million and
$0.3 million, respectively, to secure obligations under credit card programs and
surety bonds, respectively. Cricket intends to Reinstate these Class 2A and 2B
Claims. Cricket Class 2A and 2B Claims are Unimpaired and shall be deemed to
have voted to accept the Plan.
Although the Debtors do not currently believe other Class 2A
et seq. Claim Holders exist, this Class will be further divided into subclasses
designated by letters of the alphabet (CLASS 2C, CLASS 2D, and so on), so that
each Holder of any Secured Claim is in a Class by itself, except to the extent
that there are Secured Claims that are substantially similar to each other and
may be included within a single Class. Each Allowed Secured Claim in Class 2A et
seq. shall, in the discretion of the Debtor with the consent of the Informal
Vendor Debt Committee, receive, in full satisfaction, settlement, release and
discharge of and in exchange for its Claim, any one or a combination of any of
the following: (i) Cash in an amount equal to such Allowed Class 2A et seq.
Claim; (ii) deferred Cash payments totaling at least the Allowed amount of such
Allowed Class 2A et seq. Claim, of a value, as of the Effective Date, of at
least the value of such Holder's interest in the Collateral securing the Allowed
Class 2A et seq. Claim; (iii) the Collateral securing such Holder's Allowed
Class 2A et seq. Claim; (iv) payments or Liens amounting to the indubitable
equivalent of the value of such Holder's interest in the Collateral securing the
Allowed Class 2A et seq. Claim; (v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the Debtor and such Holder shall have
agreed upon in writing. The Debtor will make the foregoing election and provide
notice of such election to the applicable Holder of an Allowed Class 2A et seq.
Claim no later than 14 days prior to the Voting Deadline.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
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Cricket Class 3 - Priority Claims. Unless otherwise agreed to
by the parties, each Holder of an Allowed Claim in Class 3 will, in full
satisfaction, settlement, release, discharge of and in exchange for such Claim,
be paid the Allowed Amount of such Claim in full in Cash by Reorganized Cricket
on or before the later of (i) the Effective Date or as soon as practicable
thereafter, (ii) the date such Claim becomes an Allowed Claim and (iii) the date
that such Claim would be paid in accordance with any terms and conditions of any
agreements or understandings relating thereto between Cricket and the Holder of
such Claim. Allowed Claims in Class 3 are Unimpaired under the Plan and the
Holders of Allowed Claims in Class 3 will be deemed to have accepted the Plan.
The Debtors believe the aggregate amount of the Cricket Class 3 Claims is
approximately $33 million as of the Petition Date.
Cricket Class 4 - General Unsecured Claims. Holders of Allowed
Class 4 Claims shall, in full satisfaction, settlement, release, discharge of
and in exchange for such Claim, receive, on a Pro Rata basis, the Cricket
General Unsecured Creditor Distribution on account of such Claims. The Debtors
believe that there will be de minimus or no value distributed to Holders of
Allowed Class 4 Claims under the Cricket General Unsecured Creditor
Distribution. The Debtors believe the aggregate amount of the Cricket Class 4
Claims is approximately $1.22 billion as of the Petition Date, including the
deficiency Claims of Old Vendor Debt Holders of approximately $990 million or
more. Class 4 is Impaired and therefore entitled to vote to accept or reject the
Plan.
Cricket Class 5 - Intercompany Claim. Each Holder of an
Allowed Class 5 Claim shall in full satisfaction, settlement, release, discharge
of and in exchange for such Claim, receive the Intercompany Release on account
of such Claim as of the Initial Distribution Date. Class 5 is Impaired under the
Plan and therefore entitled to vote to accept or reject the Plan.
Cricket Class 6 - Old Common Stock of Cricket and Securities
Claims. Holders of Allowed Class 6 Interests shall not receive any property or
Cash on account of such Interests. Class 6 is Impaired and deemed to have voted
to reject the Plan.
Cricket Class 7 - Interests of Holders of Old Stock Rights and
All Claims Arising Out of Such Old Stock Rights. Holders of Allowed Class 7
Interests shall not receive any property or Cash on account of such Interests.
Class 7 is Impaired and deemed to have voted to reject the Plan. Cricket does
not believe any such Holders exist.
6. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN LICENSE HOLDING
COMPANIES (APPLICABLE TO EACH LICENSE HOLDING COMPANY)
License Holding Company Class 1A - Old Vendor Debt Claim. On
the Effective Date, or as soon as practicable thereafter, each Holder of an
Allowed Class 1A Claim shall, in full satisfaction, settlement, release,
discharge of and in exchange for such Claim, receive a Pro Rata share of the Old
Vendor Debt Distribution. Class 1A is Impaired and entitled to vote to accept or
reject the Plan. The Debtors believe the aggregate amount of the License Holding
Company Class 1A Claims is approximately $1.6 billion as of the Petition Date
(without giving effect to the value of the Collateral pledged by the License
Holding Companies).
License Holding Company Class 1B - FCC Claims. On the
Effective Date or as soon as practicable thereafter, the Holder of the FCC
Claims shall, in full satisfaction, settlement, release, discharge of and in
exchange for such Claim, be Reinstated. The Holder of the FCC Claims will be
deemed Unimpaired and to have voted to accept the Plan. The Debtors believe the
aggregate amount of the FCC Claims is approximately $78 million as of the
Petition Date.
License Holding Company Class 2A et seq. - Other Secured
Claims. Class 2A et seq. consists of all other Secured Claims against a License
Holding Company. The License Holding Companies currently do not believe any such
Holders exist.
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This Class will be further divided into subclasses designated
by letters of the alphabet (CLASS 2B, CLASS 2C, and so on), so that each Holder
of any Secured Claim is in a Class by itself, except to the extent that there
are Secured Claims that are substantially similar to each other and may be
included within a single Class. Each Allowed Secured Claim in Class 2A et seq.
shall, in the discretion of the Debtor with the consent of the Informal Vendor
Debt Committee, receive, in full satisfaction, settlement, release and discharge
of and in exchange for its Claim, any one or a combination of any of the
following: (i) Cash in an amount equal to such Allowed Class 2A et seq. Claim;
(ii) deferred Cash payments totaling at least the Allowed amount of such Allowed
Class 2A et seq. Claim, of a value, as of the Effective Date, of at least the
value of such Holder's interest in the Collateral securing the Allowed Class 2A
et seq. Claim; (iii) the Collateral securing such Holder's Allowed Class 2A et
seq. Claim; (iv) payments or Liens amounting to the indubitable equivalent of
the value of such Holder's interest in the Collateral securing the Allowed Class
2A et seq. Claim; (v) Reinstatement of such Class 2A et seq. Claim; or (vi) such
other treatment as the Debtor and such Holder shall have agreed upon in writing.
The Debtor will make the foregoing election and provide notice of such election
to the applicable Holder of an Allowed Class 2A et seq. Claim no later than 14
days prior to the Voting Deadline. To the extent the Debtor elects clause (i),
(ii), (iv), (v) or (vi) above, any liability associated with such treatment
shall be satisfied with funds from Cricket.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
License Holding Company Class 3 - Priority Claims. Unless
otherwise agreed to by the parties, each Holder of an Allowed Claim in Class 3
will, in full satisfaction, settlement, release, discharge of and in exchange
for such Claim, be paid the Allowed Amount of such Claim in full in Cash by the
applicable Reorganized License Holding Company on or before the later of (i) the
Effective Date or as soon as practicable thereafter, (ii) the date such Claim
becomes an Allowed Claim and (iii) the date that such Claim would be paid in
accordance with any terms and conditions of any agreements or understandings
relating thereto between the applicable License Holding Company and the Holder
of such Claim. Allowed Claims in Class 3 are Unimpaired under the Plan and the
Holders of Allowed Claims in Class 3 will be deemed to have accepted the Plan.
The License Holding Companies currently do not believe any such Holders exist.
License Holding Company Class 4 - General Unsecured Claims.
Holders of Allowed Class 4 Claims shall not receive any property or Cash on
account of such Claims. Class 4 is Impaired and deemed to have voted to reject
the Plan. The License Holding Companies believe that no such Holders exist
(excluding any General Unsecured Claim that could be asserted by the Holders of
Old Vendor Debt, including any undersecured Claim that could be asserted under
the Bankruptcy Code).
License Holding Company Class 5 - Intercompany Claim. Each
Holder of an Allowed Class 5 Claim shall, in full satisfaction, settlement,
release, discharge of and in exchange for such Claim, receive the Intercompany
Release under the Plan on account of such Claim as of the Initial Distribution
Date. Class 5 is Impaired under the Plan and therefore entitled to vote to
accept or reject the Plan.
License Holding Company Class 6 - Old Common Stock of License
Holding Company and Securities Claims. Holders of Allowed Class 6 Interests
shall not receive any property or Cash on account of such Interests. Class 6 is
Impaired and deemed to have voted to reject the Plan.
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License Holding Company Class 7 - Interests of Holders of Old
Stock Rights and All Claims Arising Out of Such Old Stock Rights. Holders of
Allowed Class 7 Interests shall not receive any property or Cash on account of
such Interests. Class 7 is Impaired and deemed to have voted to reject the Plan.
The License Holding Companies do not believe any such Holders exist.
7. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN PROPERTY HOLDING
COMPANIES (APPLICABLE TO EACH PROPERTY HOLDING COMPANY)
Property Holding Company Class 1A - Vendor Debt Claim. On the
Effective Date, or as soon as practicable thereafter, each Holder of an Allowed
Class 1A Claim shall, in full satisfaction, settlement, release, discharge of
and in exchange for such Claim, receive a Pro Rata share of the Old Vendor Debt
Distribution. Class 1A is Impaired and entitled to vote to accept or reject the
Plan. The Debtors believe the aggregate amount of the Property Holding Companies
Class 1A Claims is approximately $1.6 billion as of the Petition Date (without
giving effect to the value of the Collateral pledged by the Property Holding
Companies).
Property Holding Company Class 2A et seq. - Other Secured
Claims. Class 2A et seq. consists of all other Secured Claims against a Property
Holding Company. The Property Holding Companies currently do not believe any
such Holders exist.
This Class will be further divided into subclasses designated
by letters of the alphabet (CLASS 2B, CLASS 2C, and so on), so that each Holder
of any Secured Claim is in a Class by itself, except to the extent that there
are Secured Claims that are substantially similar to each other and may be
included within a single Class. Each Allowed Secured Claim in Class 2A et seq.
shall, in the discretion of the Debtor with the consent of the Informal Vendor
Debt Committee, receive, in full satisfaction, settlement, release and discharge
of and in exchange for its Claim, any one or a combination of any of the
following: (i) Cash in an amount equal to such Allowed Class 2A et seq. Claim;
(ii) deferred Cash payments totaling at least the Allowed amount of such Allowed
Class 2A et seq. Claim, of a value, as of the Effective Date, of at least the
value of such Holder's interest in the Collateral securing the Allowed Class 2A
et seq. Claim; (iii) the Collateral securing such Holder's Allowed Class 2A et
seq. Claim; (iv) payments or Liens amounting to the indubitable equivalent of
the value of such Holder's interest in the Collateral securing the Allowed Class
2A et seq. Claim; (v) Reinstatement of such Class 2A et seq. Claim; or (vi) such
other treatment as the Debtor and such Holder shall have agreed upon in writing.
The Debtor will make the foregoing election and provide notice of such election
to the applicable Holder of an Allowed Class 2A et seq. Claim no later than 14
days prior to the Voting Deadline.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
Property Holding Company Class 3 - Priority Claims. Unless
otherwise agreed to by the parties, each Holder of an Allowed Claim in Class 3
will, in full satisfaction, settlement, release, discharge of and in exchange
for such Claim, be paid the Allowed Amount of such Claim in full in Cash by the
applicable Reorganized Property Holding Company on or before the later of (i)
the Effective Date or as soon as practicable thereafter, (ii) the date such
Claim becomes an Allowed Claim and (iii) the date that such Claim would be paid
in accordance with any terms and conditions of any agreements or understandings
relating thereto between the applicable Property Holding Company and the Holder
of such Claim. Allowed Claims in Class 3 are Unimpaired under the Plan and the
Holders of Allowed Claims in Class 3 will be deemed to have accepted the Plan.
The Property Holding Companies do not believe any such Holders exist.
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Property Holding Company Class 4 - General Unsecured Claims.
Holders of Allowed Class 4 Claims shall not receive any property or Cash on
account of such Claims. Class 4 is Impaired and deemed to have voted to reject
the Plan. The Debtors believe the aggregate amount of the Property Holding
Companies Class 4 Claims is approximately $2.9 million as of the Petition Date
(excluding any General Unsecured Claim that could be asserted by the Holders of
Old Vendor Debt, including any undersecured Claim that could be asserted under
the Bankruptcy Code).
Property Holding Company Class 5 - Intercompany Claim. Each
Holder of an Allowed Class 5 Claim shall, in full satisfaction, settlement,
release, discharge of and in exchange for such Claim, receive the Intercompany
Release under the Plan on account of such Claim as of the Initial Distribution
Date. Class 5 is Impaired under the Plan and therefore entitled to vote to
accept or reject the Plan.
Property Holding Company Class 6 - Old Common Stock of
Property Holding Company and Securities Claims. Holders of Allowed Class 6
Interests shall not receive any property or Cash on account of such Interests.
Class 6 is Impaired and deemed to have voted to reject the Plan.
Property Holding Company Class 7 - Interests of Holders of Old
Stock Rights and All Claims Arising Out of Such Old Stock Rights. Holders of
Allowed Class 7 Interests shall not receive any property or Cash on account of
such Interests. Class 7 is Impaired and deemed to have voted to reject the Plan.
The Property Holding Companies do not believe any such Holders exist.
8. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN OTHER SUBSIDIARIES
(APPLICABLE TO EACH OTHER SUBSIDIARY)
Other Subsidiary Class 1A et seq. - Other Secured Claims.
Class 1A et seq. consists of all other Secured Claims against an Other
Subsidiary. The Other Subsidiaries currently do not believe any such Holders
exist.
This Class will be further divided into subclasses designated
by letters of the alphabet (CLASS 1B, CLASS 1C, and so on), so that each Holder
of any Secured Claim is in a Class by itself, except to the extent that there
are Secured Claims that are substantially similar to each other and may be
included within a single Class. Each Allowed Secured Claim in Class 1A et seq.
shall, in the discretion of the Debtor with the consent of the Informal Vendor
Debt Committee, receive, in full satisfaction, settlement, release and discharge
of and in exchange for its Claim, any one or a combination of any of the
following: (i) Cash in an amount equal to such Allowed Class 1A et seq. Claim;
(ii) deferred Cash payments totaling at least the Allowed amount of such Allowed
Class 1A et seq. Claim, of a value, as of the Effective Date, of at least the
value of such Holder's interest in the Collateral securing the Allowed Class 1A
et seq. Claim; (iii) the Collateral securing such Holder's Allowed Class 1A et
seq. Claim; (iv) payments or Liens amounting to the indubitable equivalent of
the value of such Holder's interest in the Collateral securing the Allowed Class
1A et seq. Claim; (v) Reinstatement of such Class 1A et seq. Claim; or (vi) such
other treatment as the Debtor and such Holder shall have agreed upon in writing.
The Debtor will make the foregoing election and provide notice of such election
to the applicable Holder of an Allowed Class 1A et seq. Claim no later than 14
days prior to the Voting Deadline. To the extent the Debtor elects clause (i),
(ii), (iv), (v) or (vi) above, any liability associated with such treatment
shall be satisfied with funds from Cricket.
Allowed Claims in Class 1A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 1A
et seq. will be deemed to have voted to accept the
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Plan. Allowed Claims in Class 1A et seq. that receive any alternative treatment
are Impaired and therefore entitled to vote to accept or reject the Plan.
Other Subsidiary Class 2 - Priority Claims. Unless otherwise
agreed to by the parties, each Holder of an Allowed Claim in Class 2 will, in
full satisfaction, settlement, release, discharge of and in exchange for such
Claim, be paid the Allowed Amount of such Claim in full in Cash by the
applicable Reorganized Other Subsidiary on or before the later of (i) the
Effective Date or as soon as practicable thereafter, (ii) the date such Claim
becomes an Allowed Claim and (iii) the date that such Claim would be paid in
accordance with any terms and conditions of any agreements or understandings
relating thereto between the applicable Other Subsidiary and the Holder of such
Claim. Allowed Claims in Class 2 are Unimpaired under the Plan and the Holders
of Allowed Claims in Class 2 will be deemed to have accepted the Plan.
Other Subsidiary Class 3 - General Unsecured Claims. Holders
of Allowed Class 3 Claims shall not receive any property or Cash on account of
such Claims. Class 3 is Impaired and deemed to have voted to reject the Plan.
Other Subsidiary Class 4 - Intercompany Claim. Each Holder of
an Allowed Class 4 Claim shall, in full satisfaction, settlement, release,
discharge of and in exchange for such Claim, receive the Intercompany Release
under the Plan on account of such Claim as of the Initial Distribution Date.
Class 4 is Impaired under the Plan and therefore entitled to vote to accept or
reject the Plan.
Other Subsidiary Class 5 - Old Common Stock of Other
Subsidiary and Securities Claims. Holders of Allowed Class 5 Interests shall not
receive any property or Cash on account of such Interests. Class 5 is Impaired
and deemed to have voted to reject the Plan.
Other Subsidiary Class 6 - Interests of Holders of Old Stock
Rights and All Claims Arising Out of Such Old Stock Rights. Holders of Allowed
Class 6 Interests shall not receive any property or Cash on account of such
Interests. Class 6 is Impaired and deemed to have voted to reject the Plan. The
Other Subsidiaries do not believe any such Holders exist.
C. INDEBTEDNESS OF REORGANIZED LICENSE HOLDING COMPANIES AND REORGANIZED
CRICKET
1. FCC DEBT
On the Effective Date or as soon thereafter as practicable,
the Holder of the FCC Claims shall be Reinstated. Pursuant to the Plan, the
Reorganized License Holding Companies shall remain indebted to the FCC in the
aggregate principal amount of approximately $78 million as of the Petition Date.
2. NEW INDEBTEDNESS OF REORGANIZED CRICKET
On the Effective Date, Reorganized Cricket will issue the New
Senior Notes in the aggregate principal amount of $350.0 million. A description
of the New Senior Notes and related Risk Factors is attached hereto as Exhibit
K.
The Reorganized Debtors will have additional indebtedness as
set forth in the Projections, attached hereto as Exhibit G.
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D. DISTRIBUTIONS UNDER THE PLAN
1. GENERAL
Except as otherwise provided in the Plan or in the Leap
Creditor Trust Agreement (which shall govern the timing of distributions to
Holders of Leap General Unsecured Claims), on the Effective Date or as soon as
practicable thereafter, to the extent that the Plan provides for distributions
on account of Allowed Claims or Allowed Interests in the applicable Class, each
Holder of an Allowed Claim or Allowed Interest will receive the full amount of
the distributions that the Plan provides for Allowed Claims or Allowed Interests
in the applicable Class, unless such distribution was received on an earlier
date pursuant to the terms of the Plan. Beginning on the date that is 15 days
after the end of the calendar quarter following the Effective Date and 15 days
after the end of each calendar quarter thereafter, distributions will also be
made respectively (a) to Holders of Claims or Interests to whom a distribution
has become deliverable during the preceding calendar quarter and (b) to Holders
of Disputed Claims or Disputed Interests in any such Class whose Claims or
Interests were Allowed during the preceding calendar quarter. Such quarterly
distributions will also be in the full amount that the Plan provides for Allowed
Claims or Allowed Interests in the applicable Class.
Except as otherwise provided in the Plan or the Confirmation
Order, and except with respect to Claims against Leap, all Cash necessary for
the Reorganized Debtors to make payments pursuant to the Plan will be obtained
from the applicable Debtors' existing cash balances, the operations of the
Debtors or Reorganized Debtors or post-Effective Date borrowings, as applicable.
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the Leap Creditor Trust to make payments pursuant
to the Plan for Holders of Claims against Leap will be obtained from assets
transferred to the Leap Creditor Trust in accordance with the terms of the Plan.
The Disbursing Agents will make all distributions of Cash and
securities required to be distributed under the applicable provisions of the
Plan. Any Disbursing Agent may employ or contract with other entities to assist
in or make the distributions required by the Plan. Each Disbursing Agent will
serve without bond, and each Disbursing Agent, other than the Reorganized
Debtors and the Leap Creditor Trust Trustee, will receive, without further Court
approval, reasonable compensation for distribution services rendered pursuant to
the Plan and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services from the Reorganized Debtors on terms acceptable
to the Reorganized Debtors. Any compensation for distribution services rendered
by the Leap Creditor Trust Trustee pursuant to the Plan or the Leap Creditor
Trust and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services shall be paid from Cash or assets transferred to
the Leap Creditor Trust.
Cash payments made pursuant to the Plan will be in U.S.
dollars by checks drawn on or wire transfers from a bank selected by the
Disbursing Agent. Except as otherwise set forth in the Leap Creditor Trust, Cash
payments of $1,000,000 or more to be made pursuant to the Plan will, to the
extent requested in writing no later than five days after the Confirmation Date,
be made by wire transfer from a bank. Cash payments to foreign creditors, if
any, may be made, at the option of the Disbursing Agent, in such funds and by
such means as are necessary or customary in a particular foreign jurisdiction.
The Disbursing Agents will make all distributions required
under the applicable provisions of the Plan and the Leap Creditor Trust.
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2. TIMING AND METHODS OF DISTRIBUTIONS
a. COMPLIANCE WITH TAX REQUIREMENTS
In connection with the Plan, to the extent applicable and
except as provided in Section 5.17(b) of the Plan, each Disbursing Agent must
comply with all tax withholding and reporting requirements imposed on it by any
governmental unit, and all distributions pursuant to the Plan will be subject to
such withholding and reporting requirements. The Disbursing Agents will be
authorized to take any and all actions that may be necessary or appropriate to
comply with such withholding and reporting requirements.
Notwithstanding any other provision of the Plan: (i) each
Holder of an Allowed Claim or Interest that is to receive a distribution of Cash
pursuant to the Plan will have sole and exclusive responsibility for the
satisfaction and payment of any tax obligations imposed by any governmental
unit, including income, withholding and other tax obligations, on account of
such distribution; and (ii) no distribution will be made to or on behalf of such
Holder pursuant to the Plan unless and until such Holder has made arrangements
satisfactory to the Disbursing Agent for the payment and satisfaction of such
tax obligations. Any Cash to be distributed pursuant to the Plan will, pending
the implementation of such arrangements, be treated as an undeliverable
distribution pursuant to the Plan.
b. PRO RATA DISTRIBUTION
When the Plan provides for Pro Rata distribution, the property
to be distributed under the Plan shall be divided pro rata among the Holders of
Allowed Claims or Allowed Interests of the relevant Class for that particular
Debtor.
c. DISTRIBUTION RECORD DATE
As of the close of business on the Distribution Record Date,
the transfer registers for any Old Securities and Old Vendor Debt maintained by
the Debtors, or their respective agents, will be closed. The Disbursing Agent
and the respective agents of the Debtors will have no obligation to recognize
the transfer of the Old Securities and Old Vendor Debt occurring after the
Distribution Record Date, and will be entitled for all purposes relating to the
Plan to recognize and deal only with those Holders of record as of the close of
business on the Distribution Record Date. Distributions under the Plan shall be
made by the Debtors, Leap Creditor Trust or Reorganized Debtors, as applicable,
for the benefit of the Holders of Allowed Administrative Claims and Allowed
Claims in the Debtors' respective books and records, unless such addresses are
superseded by addresses listed on proofs of claim or transfers of claims filed
pursuant to Bankruptcy Rule 3001.
d. FRACTIONAL SHARES
The calculation of percentage distribution of the New Common
Stock to be made to Holders of certain Allowed Claims and Interests, as provided
for in the Plan, may mathematically entitle such Holder to a fractional interest
in the New Common Stock. The number of shares of New Common Stock to be received
by a Holder of an Allowed Claim and/or Interest shall be rounded to the next
greater or lower whole number of shares as follows: (a) fractions of 1/2 or
greater shall be rounded to the next greater whole number and (b) fractions of
less than 1/2 shall be rounded to the next lower whole number. The total number
of shares of New Common Stock to be distributed to a class of Claims or
Interests shall be adjusted as necessary to account for the rounding described
above. No consideration shall be provided in lieu of the fractional shares that
are rounded down and not issued.
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e. SPECIAL PROCEDURES FOR LOST, STOLEN, MUTILATED OR
DESTROYED INSTRUMENTS
In addition to any requirements under the Bylaws of the
Debtors, any Holder of a Claim evidenced by an Instrument that has been lost,
stolen, mutilated or destroyed will, in lieu of surrendering such Instrument,
deliver to the Disbursing Agent: (a) evidence satisfactory to the Disbursing
Agent of the loss, theft, mutilation or destruction; and (b) such security or
indemnity as may be required by the Disbursing Agent to hold the Disbursing
Agent harmless from any damages, liabilities or costs incurred in treating such
individual as a Holder of an Instrument. Upon compliance with the Plan, the
Holder of a Claim evidenced by such an Instrument will, for all purposes under
the Plan, be deemed to have surrendered an Instrument, as applicable.
f. UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
Any Person that is entitled to receive a cash distribution
under the Plan but that fails to cash a check within 90 days of its issuance
shall be entitled to receive a reissued check from the Leap Creditor Trust or
Reorganized Debtors, as applicable, for the amount of the original check,
without any interest, if such person requests the Disbursing Agent to reissue
such check and provides the Disbursing Agent with such documentation as the
Disbursing Agent requests to verify that such Person is entitled to such check,
prior to the first anniversary of the Effective Date. If a Person fails to cash
a check within 90 days of its issuance and fails to request reissuance of such
check prior to the first anniversary of the Effective Date, such Person shall
not be entitled to receive any distribution under this Plan. If the distribution
to any Holder of an Allowed Claim or Allowed Interest is returned to a
Disbursing Agent as undeliverable, no further distributions will be made to such
Holder unless and until the applicable Disbursing Agent is notified in writing
of such Holder's then-current address. Undeliverable distributions will remain
in the possession of the Disbursing Agent pursuant to the Plan until such time
as a distribution becomes deliverable. Undeliverable cash will be held in trust
in segregated bank accounts in the name of the Disbursing Agent for the benefit
of the potential claimants of such funds, and will be accounted for separately.
Except as set forth in the Leap Creditor Trust Agreement, the Disbursing Agent
holding undeliverable cash shall invest such cash in a manner consistent with
Reorganized Cricket's investment and deposit guidelines. Any distribution which
is not claimed within one year of the Effective Date shall be deemed property
of, as applicable, the Leap Creditor Trust and the Reorganized Debtors, and to
the extent deemed the property of the Leap Creditor Trust, shall be distributed
by the Leap Creditor Trust Trustee, on a Pro Rata basis, to the Holders of
beneficial interests in the Leap Creditor Trust as soon as practicable
thereafter.
3. OBJECTIONS TO CLAIMS AND AUTHORITY TO PROSECUTE OBJECTIONS;
CLAIMS RESOLUTION
The right to prosecute, File, litigate and settle objections
to Disputed Claims, whether or not the subject of litigation pending as of the
Effective Date, shall be deemed automatically transferred by the Debtors and
their Estates to the Reorganized Debtors as of the Effective Date. From and
after the Effective Date, only the Reorganized Debtors shall have the right to
File, litigate or settle any objections to Disputed Claims; provided, that in
the case of Claims against Leap (including but not limited to the Allowance or
allocation of Administrative Claims), from and after the Effective Date the Leap
Creditor Trust Trustee (to the extent provided in the Plan) shall have the
authority to File objections, settle, compromise, withdraw or litigate to
judgment objections to Claims.
Except as otherwise provided in the Plan, objections to any
Disputed Claim shall be Filed within 60 days after the Effective Date, or within
such additional period of time as the Court may allow upon motion made by the
Reorganized Debtors within such 60 day period. Any such objection that is not
timely filed shall be deemed forever waived by the Reorganized
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Debtors' Estates and neither the Reorganized Debtors nor any other
party-in-interest shall have any right to pursue the same.
Notwithstanding that the Reorganized Debtors and the Leap
Creditor Trust Trustee shall have the right to File, litigate and settle
objections to Disputed Claims on behalf of the Debtors and their Estates,
nothing contained herein shall be deemed to obligate the Reorganized Debtors and
the Leap Creditor Trust Trustee to take any such actions, all of which shall be
determined by the Reorganized Debtors and the Leap Creditor Trust Trustee in
their sole and absolute discretion.
From and after the Effective Date, the Reorganized Debtors
(and the Leap Creditor Trust Trustee with respect to any Disputed Claim against
Leap or Disputed Interest in Leap) may settle or compromise any Disputed Claim
or Disputed Interest without approval of the Court.
Within 7 days prior to the Voting Deadline, the Debtors will
File a schedule of Claims to which the Debtors, Reorganized Debtors or Leap
Creditor Trust, as applicable, may object or challenge in any way and of causes
of action (including avoidance actions) that the Debtors or Reorganized Debtors
may bring (the "Objection Schedule"). Within two business days following the
date the Debtors File the Objection Schedule, the Debtors shall serve the
Objection Schedule on all parties listed on the Objection Schedule. The Debtors
reserve the right to amend the Objection Schedule at or prior to the
Confirmation Hearing. The fact that an objection or cause of action is not
listed on the Objection Schedule shall not preclude the Debtors, the Reorganized
Debtors or the Leap Creditor Trust from bringing any such objection or action.
THE DEBTORS HAVE NOT FULLY REVIEWED THE CLAIMS IN THE CASE OR
DETERMINED WHETHER OBJECTIONS TO CLAIMS EXIST. THIS INVESTIGATION IS ONGOING AND
WILL OCCUR, IN LARGE PART, AFTER THE CONFIRMATION DATE. AS A RESULT, CREDITORS
AND OTHER PARTIES-IN-INTEREST ARE HEREBY ADVISED THAT, NOTWITHSTANDING THAT THE
EXISTENCE OF ANY PARTICULAR OBJECTION TO A DISPUTED CLAIM MAY NOT BE LISTED,
DISCLOSED OR SET FORTH IN THIS PLAN, AN OBJECTION TO A CLAIM MAY BE BROUGHT
AGAINST ANY CREDITOR OR PARTY-IN-INTEREST AT ANY TIME, SUBJECT TO THE TIME
LIMITATIONS SET FORTH IN THIS PARAGRAPH AND THE LIMITATION THAT AN OBJECTION MAY
BE ASSERTED ONLY WITH RESPECT TO DISPUTED CLAIMS CONTEMPLATED WITHIN THE
OBJECTION SCHEDULE. IN ADDITION TO THE FOREGOING, WITH RESPECT TO THE DISPUTED
CLAIMS SCHEDULE, THE DEBTORS, THE REORGANIZED DEBTORS AND THE LEAP CREDITOR
TRUST TRUSTEE RETAIN AND HEREBY RESERVE THE RIGHT TO OBJECT TO (i) ANY CLAIMS
FILED AFTER THE BAR DATE OF JUNE 28, 2003, (ii) ANY CLAIMS FILED BY ADDITIONAL
PARTIES AFTER THE SUPPLEMENTAL BAR DATE OF AUGUST __, 2003 AND (iii) ANY CLAIMS
FILED IN ORDER TO SET FORTH DAMAGES ARISING FROM THE REJECTION OF AN EXECUTORY
CONTRACT OR OTHER AGREEMENT WITH THE DEBTORS. THE DEBTORS AND THE REORGANIZED
DEBTORS FURTHER RETAIN AND HEREBY RESERVE THE RIGHT TO OBJECT TO CLAIMS
INADVERTENTLY OMITTED FROM THE DISPUTED CLAIMS SCHEDULES, WHICH OBJECTIONS WILL
NOT MATERIALLY AND ADVERSELY AFFECT THE CLAIMS OF THE REMAINING CREDITORS OF THE
DEBTORS' ESTATES. FINALLY, THE DEBTORS AND THE REORGANIZED DEBTORS RETAIN AND
HEREBY RESERVE THE RIGHT TO OBJECT TO AMOUNTS THAT HAVE BEEN SCHEDULED BY THE
DEBTORS, OR REFLECTED IN THE DEBTORS' BOOKS AND RECORDS, AND WHICH ARE FOUND TO
BE OBJECTIONABLE IN ANY RESPECT.
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Objections to applications of professionals or other Persons
for compensation or reimbursement of expenses must be Filed and served on the
Reorganized Debtors, counsel for the Reorganized Debtors, the Informal Vendor
Debt Committee, the Official Committee (or, if the Official Committee has
disbanded, the Leap Creditor Trust Trustee) and the professionals to whose
application the objections are addressed on or before (i) sixty (60) days after
such application is Filed and served or (ii) such later date as the Court shall
order upon application made prior to the end of such 60-day period or upon
agreement between the Reorganized Debtors and the affected professional.
4. DISPUTED CLAIMS; RESERVE AND ESTIMATIONS
a. TREATMENT OF DISPUTED CLAIMS
Notwithstanding any other provisions of the Plan, no payments
or distributions will be made on account of a Disputed Claim or a Disputed
Interest until such Claim or Interest becomes an Allowed Claim or Allowed
Interest. The Leap Creditor Trust Trustee or Reorganized Debtors, as applicable,
may, at any time, request that the Court estimate any contingent or unliquidated
Claim pursuant to section 502(c) of the Bankruptcy Code, irrespective of whether
any Debtor previously objected to such Claim or whether the Court has ruled on
any such objection. The Court will retain jurisdiction to estimate any
contingent or unliquidated Claim at any time during litigation concerning any
objection to the Claim, including during the pendency of any appeal relating to
any such objection. If the Court estimates any contingent or unliquidated Claim,
that estimated amount will constitute either the Allowed Amount of such Claim or
a maximum limitation on such Claim, as determined by the Court. If the estimated
amount constitutes a maximum limitation on such Claim, the Leap Creditor Trust
Trustee or Reorganized Debtors, as applicable, may elect to pursue any
supplemental proceedings to object to any ultimate payment on account of such
Claim. All of these Claims objection, estimation and resolution procedures are
cumulative and not necessarily exclusive of one another. In addition to seeking
estimation of Claims as provided in the Plan, the Leap Creditor Trust Trustee or
Reorganized Debtors, as applicable, may resolve or adjudicate certain Disputed
Claims of Holders in Unimpaired Classes in the manner in which the amount of
such Claim and the rights of the Holder of such Claim would have been resolved
or adjudicated if the Chapter 11 Cases had not been commenced, subject to any
applicable discharge and limitations on amounts of claims and remedies available
under bankruptcy law. Claims may be subsequently compromised, settled, withdrawn
or resolved by the Leap Creditor Trust Trustee or Reorganized Debtors, as
applicable.
b. DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS ONCE THEY
ARE ALLOWED
Except as set forth in the Leap Creditor Trust Agreement,
within 15 days following the end of each calendar quarter, the Disbursing Agent
will make all distributions on account of any Disputed Claim or Disputed
Interest that has become an Allowed Claim or Allowed Interest in accordance with
the Plan. Such distributions will be made pursuant to the provisions of the Plan
governing the applicable Class. Holders of Disputed Claims or Disputed Interests
that are ultimately Allowed will not be entitled to receive, on the basis of the
amounts ultimately allowed, any interest.
c. RESERVE OF LEAP CREDITOR TRUST
In accordance with the terms of the Leap Creditor Trust, and
as more fully set forth therein, the Leap Creditor Trust Trustee shall be
authorized to make distributions to Holders of Allowed Leap Administrative
Claims and Allowed Leap General Unsecured Claims from time to time. The total
amount of Allowed Leap Administrative Claims and Allowed Leap General Unsecured
Claims (and the value of certain of Leap assets and certain Leap Litigation
Claims) may not be known until after certain distributions are made, either
because certain
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Claims will be Disputed Claims or because those Claims will not have been made
by their Holders prior to the Effective Date. As a result, the Leap Creditor
Trust Trustee shall hold back from the distributions from the Leap Creditor
Trust (as more fully described in the Leap Creditor Trust Agreement) reserves in
respect of each Administrative Claim and Disputed Claim against Leap until such
Claims are resolved (the "Reserve"), so that the total amount of all Allowed
Leap Administrative Claims and Allowed Leap General Unsecured Claims includes
the sum of (i) each estimated Administrative Claim not otherwise fully reserved
for by Leap and (ii) the amount of each Disputed Claim (or the maximum amount of
any such Disputed Claim as estimated by the Bankruptcy Court pursuant to Section
502(c) of the Bankruptcy Code, if less), until such Claims are resolved.
Distributions from the Leap Creditor Trust will be made only to the Holders of
Claims that have been Allowed.
d. RESERVE FOR LEAP ADMINISTRATIVE AND PRIORITY CLAIMS
In connection with the Leap General Unsecured Claim Cash
Distribution, prior to the Initial Distribution Date, Leap shall establish an
appropriate reserve in an amount to be agreed upon by Leap and the Official
Committee, to satisfy Allowed Administrative Claims against Leap through and
including the Effective Date (including Claims for compensation and
reimbursement of expenses by professionals providing services to Leap) and
Allowed Priority Claims against Leap. If and to the extent that such reserves
are insufficient to satisfy all such Allowed Administrative Claims against Leap
and Allowed Priority Claims against Leap, such Claims shall be satisfied by
assets transferred or transferable to the Leap Creditor Trust that have not then
been distributed to holders of beneficial interests in the Leap Creditor Trust.
Following the Effective Date, after the satisfaction of all Allowed
Administrative Claims and Allowed Priority Claims against Leap and the
resolution of all Disputed Administrative Claims and Disputed Priority Claims
against Leap, any remaining Cash held in the reserve of Reorganized Leap will be
distributed to the Leap Creditor Trust. Under no circumstances shall Reorganized
Leap, Cricket or any other Debtor or Reorganized Debtor be liable in any way for
any Claims against Leap, including such Allowed Administrative Claims and
Allowed Priority Claims.
e. RESERVE FOR CRICKET COMPANIES' ADMINISTRATIVE AND
PRIORITY CLAIMS
Prior to the Confirmation Date, Cricket shall establish an
appropriate reserve in an amount to be agreed upon by Cricket and the Informal
Vendor Debt Committee, to satisfy Allowed Administrative Claims against Cricket
and the other Cricket companies through and including the Effective Date
(including Claims for compensation and reimbursement of expenses by
professionals providing services) and Allowed Priority Claims against Cricket
and the other Cricket companies. If and to the extent that such reserves are
insufficient to satisfy all such Allowed Administrative Claims and Allowed
Priority Claims, such Claims shall be satisfied by other assets of Cricket.
Following the Effective Date, after the satisfaction of all such Allowed
Administrative Claims and Allowed Priority Claims and the resolution of all such
Disputed Administrative Claims and Disputed Priority Claims, any remaining Cash
held in the reserve of Reorganized Cricket will become available to Reorganized
Cricket to use in its discretion. Under no circumstances shall Leap or the Leap
Creditor Trust be liable in any way for any Claims against any non-Leap Debtors,
including any such Allowed Administrative Claims and Allowed Priority Claims.
5. SETOFFS
Except with respect to claims released pursuant to the Plan or
any contract, instrument, release, indenture or other agreement or document
created in connection with the Plan, the Leap Creditor Trust Trustee and the
Reorganized Debtors may, as applicable and pursuant to section 553 of the
Bankruptcy Code or applicable nonbankruptcy law, set off against any Allowed
Claim and the distributions to be made pursuant to the Plan on account of such
Claim (before any distribution is made on account of such Claim), the claims,
rights and causes
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of action of any nature that the Leap Creditor Trust Trustee or any of the
Reorganized Debtors may hold against the Holder of such Allowed Claim; provided,
however, that neither the failure to effect such a setoff nor the allowance of
any Claim hereunder will constitute a waiver or release by the Leap Creditor
Trust or Reorganized Debtors of any such claims, rights and causes of action
that the Debtors, the Leap Creditor Trust or the Reorganized Debtors may possess
against such Holder.
E. GENERAL INFORMATION CONCERNING THE PLAN
The following is a summary of certain additional information
concerning the Plan. This summary is qualified in its entirety by reference to
the provisions of the Plan.
1. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Under Section 365 of the Bankruptcy Code, the Debtors have the
right, subject to Court approval, to assume or reject any executory contracts or
unexpired leases. If an executory contract or unexpired lease entered into
before the Petition Date is rejected by the Debtors, it will be treated as if
the Debtors breached such contract or lease on the date immediately preceding
the Petition Date, and the other party to the agreement may assert an Unsecured
Claim for damages incurred as a result of the rejection. In the case of
rejection of employment agreements and real property leases, damages are subject
to certain limitations imposed by Sections 365 and 502 of the Bankruptcy Code.
a. ASSUMPTION AND CURE
The Debtors are parties to thousands of executory contracts
and non-residential real property leases. On or before 17 days prior to the
Voting Deadline, the Debtors will File a schedule of such contracts and leases
that they intend to assume or assign to another Debtor, along with proposed cure
amounts that will be paid by the Reorganized Debtors (the "Assumption
Schedule"). Within one business day following the Filing of the Assumption
Schedule, the Debtors will serve the Assumption Schedule on the non-debtor
parties to the contracts and leases set forth on the Assumption Schedule, the
Official Committee and the Informal Vendor Debt Committee. Any party to a
contract or lease who objects to the listed cure amounts must File and serve an
objection on counsel no later than thirty (30) days after the Debtors File and
serve the Assumption Schedule. Failure to File and serve a timely objection
shall be deemed consent to the cure amounts listed on the Assumption Schedule.
Any cure amounts shall be the responsibility of Cricket.
Any monetary amounts by which each executory contract and
unexpired lease to be assumed pursuant to the Plan is in default will be
satisfied, pursuant to Section 365(b)(1) of the Bankruptcy Code, at the option
of the applicable Debtor: (a) by payment of the default amount in Cash on the
Effective Date; or (b) on such other terms as are agreed to by the parties to
such executory contract or unexpired lease. All cure payments shall be made by
Reorganized Cricket. If there is a dispute regarding: (i) the amount of any cure
payment; (ii) the ability of a Reorganized Debtor to provide "adequate assurance
of future performance" (within the meaning of Section 365 of the Bankruptcy
Code) under the contract or lease to be assumed or assigned; or (iii) any other
matter pertaining to assumption, the cure payments required by Section 365(b)(1)
of the Bankruptcy Code will be made following the entry of a Final Order
resolving the dispute and approving the assumption.
The Confirmation Order will constitute an Order of the Court
approving the assumptions described on the Assumption Schedule, pursuant to
Section 365 of the Bankruptcy Code, as of the Effective Date. Cricket agrees
that it intends to assume Nortel's contract if the parties can work out a
mutually acceptable cure amount and resolve additional issues raised by Nortel.
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Any executory contract or lease not listed on the Assumption
Schedule or that is not the subject of a motion to assume that is pending on the
Confirmation Date shall be deemed rejected as of the Confirmation Date. The
Debtors reserve the right to amend the Assumption Schedule at or prior to the
Confirmation Hearing. If the Debtors add a contract or lease to the Assumption
Schedule after the Assumption Schedule is originally Filed (as described above),
the Debtor party to the applicable contract or lease shall serve the non-Debtor
party to such contract or lease with notice (a) that the contract or lease has
been added to the Assumption Schedule and (b) of the Debtor's proposed cure
amount (the "Amended Assumption Schedule Notice"). The non-Debtor party shall
have 30 days after service of the Amended Assumption Schedule Notice to File and
serve an objection to the cure amount. To the extent the parties have a dispute
with respect to the cure amount, the Debtors shall create a reserve for the full
amount of the cure amount pending resolution of such dispute (either by
stipulation or court order).
b. REJECTIONS
On or before 17 days prior to the Voting Deadline, the Debtors
will File a schedule of executory contracts and non-residential real property
leases that they intend to reject (the "Rejection Schedule"). Within one
business day following the Filing of the Rejection Schedule, the Debtors will
serve the Rejection Schedule on the non-debtor parties to the contracts and
leases, the Official Committee and the Informal Vendor Debt Committee. The
Rejection Schedule will indicate those contracts and leases that will be
rejected as of the Confirmation Date, and which will be rejected on or before
the Effective Date. The Debtors reserve the right to amend the Rejection
Schedule at or prior to the Confirmation Hearing.
Whether or not listed on the Rejection Schedule, any executory
contract or lease not listed on the Assumption Schedule or that is not the
subject of a motion to assume that is pending on the Confirmation Date shall be
deemed rejected as of the Confirmation Date. The Confirmation Order shall
constitute an Order of the Court approving such rejections described herein,
pursuant to Section 365 of the Bankruptcy Code.
c. BAR DATE FOR REJECTION DAMAGES
All Claims for damages arising from the rejection of executory
contracts or unexpired leases must be Filed with the Court in accordance with
the terms of the order authorizing such rejection, or, if not rejected by
separate order, within sixty (60) days from the entry of the Confirmation Order.
Any Claims not filed within such time will be forever barred from assertion
against the Debtors, the Estates, the Reorganized Debtors and the Leap Creditor
Trust, unless a stipulation has been entered into with respect to the rejection
of such executory contract or unexpired lease by the applicable Debtor and
non-Debtor party. Each of the Allowed Claims arising from the rejection of
executory contracts or unexpired leases shall be treated as a General Unsecured
Claim of the applicable Debtor that was party to such contract or lease. The
Reorganized Debtors and the Leap Creditor Trust Trustee shall have 60 days from
the date of such filing to File an objection to any Claim for rejection damages.
2. CONTINUATION OF CERTAIN RETIREMENT AND OTHER BENEFITS
On and after the Effective Date, to the extent required by
Section 1129(a)(13) of the Bankruptcy Code, each Reorganized Debtor shall
continue to pay all retiree benefits (if any), as the term "retiree benefits" is
defined in Section 1114(a) of the Bankruptcy Code, maintained or established
prior to the Confirmation Date.
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3. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND
OTHER OBLIGATIONS INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and
other obligations incurred after the Petition Date by the Debtors shall be
performed by the Debtors or Reorganized Debtors in the ordinary course of their
businesses. Accordingly, such executory contracts, unexpired leases and other
obligations shall survive and remain unaffected by entry of the Confirmation
Order.
F. ADDITIONAL INFORMATION REGARDING TREATMENT OF CERTAIN CLAIMS
1. TREATMENT OF UNCLASSIFIED CLAIMS
The Bankruptcy Code does not require classification of certain
priority claims against a debtor. In these cases, these unclassified claims
include Administrative Claims and Priority Tax Claims. All distributions
referred to below that are scheduled for the Effective Date will be made on the
Effective Date or as soon as practicable thereafter.
Administrative Claims. An "Administrative Claim" is a claim
for payment of an administrative expense of a kind specified in Section 503(b)
of the Bankruptcy Code and referred to in Section 507(a)(1) of the Bankruptcy
Code, including, without limitation, the actual and necessary costs and expenses
incurred after the commencement of a chapter 11 case of preserving the estate or
operating the business of the company (including wages, salaries and commissions
for services), loans and advances to the company made after the petition date,
compensation for legal and other services and reimbursement of expenses awarded
or allowed under Section 330(a) or 331 of the Bankruptcy Code, certain retiree
benefits, certain reclamation claims, and all fees and charges against the
estate under Chapter 123 of Title 28, United States Code. Subject to certain
additional requirements for professionals and certain other entities set forth
below, each Reorganized Debtor, as the case may be, shall pay each Holder of an
Allowed Administrative Claim in full on the Effective Date, on account of its
Administrative Claim, unless the Holder and the Company or each Reorganized
Debtor agree or shall have agreed to other treatment of such Claim, or an order
of the Court provides for other terms; provided that if incurred in the ordinary
course of business or otherwise assumed by the Debtors pursuant to the Plan,
including Administrative Claims of governmental units for taxes, an Allowed
Administrative Claim will be assumed on the Effective Date and paid, performed
or settled by the Reorganized Debtors when due in accordance with the terms and
conditions of the particular agreement(s) governing the obligation in the
absence of the Chapter 11 Cases. Holders of Administrative Claims (other than
Administrative Claims by professionals requesting compensation or reimbursement
of expenses) shall have until 30 days after the Effective Date to File requests
for payment.
Claims by Professionals. All professionals or other Persons
requesting compensation or reimbursement of expenses pursuant to any of sections
327, 328, 330, 331, 503(b) and 1103 of the Bankruptcy Code for services rendered
on or before the Effective Date (including, inter alia, any compensation
requested by any professional or any other Person for making a substantial
contribution in the Bankruptcy Cases) shall File and serve on each of the
Reorganized Debtors, the Informal Vendor Debt Committee and the Official
Committee (or, if the Official Committee has disbanded, the Leap Creditor Trust
Trustee) an application for final allowance of compensation and reimbursement of
expenses no later than (i) sixty (60) days after the Effective Date, or (ii)
such later date as the Court shall order upon application made prior to the end
of such 60-day period. All compensation and reimbursement of expenses for
professionals incurred by or on behalf of Leap shall be paid for by Leap. All
compensation and reimbursement of expenses for professionals incurred by or on
behalf of Debtors other than Leap shall be paid for by Cricket.
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Objections to applications of professionals or other Persons
for compensation or reimbursement of expenses must be Filed and served on the
Reorganized Debtors, counsel for the Reorganized Debtors, the Informal Vendor
Debt Committee, the Official Committee (or, if the Official Committee has
disbanded, the Leap Creditor Trust Trustee) and the professionals to whose
application the objections are addressed on or before (i) sixty (60) days after
such application is Filed and served or (ii) such later date as the Court shall
order upon application made prior to the end of such 60-day period or upon
agreement between the Reorganized Debtors and the affected professional. On or
prior to the Confirmation Date, each professional seeking compensation or
reimbursement shall provide the Reorganized Debtors, the Informal Vendor Debt
Committee and the Official Committee with a non-binding, written estimate of the
amount of its requested compensation and reimbursement through the Effective
Date. On the Effective Date, Reorganized Cricket shall establish a reserve for
professionals providing services to Debtors other than Leap (the "Professional
Claims Reserve") in an amount equal to the aggregate amount of such estimated
compensation or reimbursements, unless otherwise previously paid by the Debtors.
The funds in the Professional Claims Reserve shall be used solely for the
payment of Allowed professional fee claims for professionals providing services
to Debtors other than Leap. If an applicable professional fails to submit an
estimate of its fees in accordance with this section, the Reorganized Debtors
shall not pay such professional's Allowed professional fee claim from the
Professional Claims Reserve but rather shall pay such claim from any other
source available to such Reorganized Debtors. The foregoing notwithstanding, if
an applicable professional submits a non-binding, written estimate of his or her
fees and reimbursable expenses in accordance with this section, under no
circumstances shall such submission be construed to limit the source of such
professional's compensation and reimbursement solely to the funds set aside in
the Professional Claims Reserve, nor shall such submission be construed as a
maximum or cap on the amount of compensation and expense reimbursement
ultimately payable to such professional. Any professional fees and
reimbursements or expenses incurred by the Reorganized Debtors subsequent to the
Effective Date may be paid by the Reorganized Debtors without application to or
Order of the Court. The costs of the Leap Creditor Trust, including without
limitation, the fees and expenses of the Leap Creditor Trust Trustee and any
professionals retained by the Leap Creditor Trust Trustee, shall be borne
entirely by the Leap Creditor Trust.
G. ALLOCATION OF CONSIDERATION
The aggregate consideration to be distributed to holders of
Allowed Claims in each class under the Plan shall be treated as first satisfying
an amount equal to the stated principal amount of the Allowed Claim for such
holders, and any remaining consideration considered as satisfying accrued but
unpaid interests and costs, if any, and attorneys' fees where applicable.
H. CANCELLATION OF OLD LEAP NOTES; CERTAIN PROVISIONS IN RESPECT OF THE
OLD LEAP NOTES, AND THE OLD INDENTURE TRUSTEE
a. CANCELLATION OF OLD LEAP NOTES
On the Effective Date, the Old Leap Notes will be deemed
cancelled and of no further force or effect with respect to the Debtors without
any further action on the part of the Court, any Person or any governmental
entity or agency. Following the Effective Date, holders of Old Leap Notes will
receive from the Disbursing Agent or its designee specific instructions
regarding the time and manner in which the Old Leap Notes are to be surrendered.
Pending such surrender, such Old Leap Notes will be deemed cancelled and shall
represent only the right to receive the distributions to which the holder is
entitled under this Plan.
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b. OLD INDENTURE TRUSTEE'S LIEN
Subject to the terms of the Indenture and to applicable law,
the Plan shall not affect the lien of the Old Indenture Trustee pursuant to
Section 7.07 of the Indenture on all money or property now or in the future held
by the Old Indenture Trustee, including without limitation any distributions in
respect of the Old Leap Notes pursuant to the Plan or the Leap Creditor Trust,
to secure payment of the fees and expenses incurred or to be incurred by the Old
Indenture Trustee (including without limitation the fees and expenses of its
counsel) and the indemnity and all other obligations set forth in Section 7.07
of the Indenture, which lien shall continue notwithstanding the occurrence of
the Confirmation Date, the Initial Distribution Date and the Effective Date and
notwithstanding the discharge of the Debtors pursuant to the Plan and Section
1141 of the Bankruptcy Code. Subject to the terms of the Indenture and
applicable law, the Old Indenture Trustee may at any time, and from time to
time, pay or reserve for such fees, expenses, indemnity and other obligations
from any such money or property now or in the future held by the Old Indenture
Trustee.
c. TAX REPORTING
Subject to the terms of the Indenture and to applicable law,
none of the Old Indenture Trustee, the Disbursing Agent or the Leap Creditor
Trust Trustee shall have any obligation to pay, make withholdings in respect of,
or make any filings with or reportings to any governmental entity or agency or
any other Person in respect of, any tax or tax-related obligations in respect of
the Old Leap Notes or any distributions pursuant to the Plan or the Leap
Creditor Trust in respect of the Old Leap Notes. Instead, (i) the beneficial
holder of each Old Leap Note shall have the obligation to pay all taxes in
respect of such distributions, and (ii) the top-tier Depository Trust Company
participant in respect of each Old Leap Note shall have the obligation to comply
with all such withholding, filing and reporting requirements.
d. INDENTURE
The Indenture shall continue in full force and effect
notwithstanding the occurrence of the Confirmation Date, the Initial
Distribution Date and the Effective Date and notwithstanding the discharge of
the Debtors, except that the liability of any of the Debtors thereunder shall be
discharged pursuant to the Plan and Section 1141 of the Bankruptcy Code.
I. CANCELLATION OF OLD LEAP COMMON STOCK AND OTHER OLD SECURITIES
As of the Effective Date, by virtue of the Plan and in all
events without any action on the part of the Holders thereof, the Old Securities
issued and outstanding or held in treasury, including without limitation, the
Old Leap Common Stock, will be cancelled and retired.
J. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the Reorganized Debtors to make payments pursuant
to the Plan will be obtained from the Reorganized Debtors' Cash balances or
borrowings and the operations of the Reorganized Debtors.
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the Leap Creditor Trust Trustee to make payments
pursuant to the Plan will be obtained from the Leap Creditor Trust Assets.
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K. CERTAIN CORPORATE GOVERNANCE MATTERS
a. CANCELLATION OF OLD SECURITIES AND RELATED AGREEMENTS
On the Effective Date, the Old Securities and the Old Stock
Rights, and all obligations of the Debtors under all of the foregoing or under
any agreements relating to the foregoing will be terminated, cancelled and
extinguished.
b. CERTIFICATES OF INCORPORATION
On the Effective Date, each of the Reorganized Debtors shall
adopt the Amended Debtor Certificates of Incorporation pursuant to applicable
non-bankruptcy law and section 1123(a)(5)(I) of the Bankruptcy Code. The Amended
Debtor Certificates of Incorporation will, among other provisions: (i) authorize
the issuance of the New Common Stock; and (ii) prohibit the issuance of
nonvoting securities to the extent required by section 1123(a)(6) of the
Bankruptcy Code. The Amended Debtor Certificates of Incorporation will become
effective upon the occurrence of the Effective Date.
L. EFFECT OF CONFIRMATION OF THE PLAN
1. VESTING OF ASSETS
Except as otherwise provided in any provision of the Plan, on
the Effective Date, the Leap Creditor Trust Assets shall vest in the Leap
Creditor Trust and all property of the other Estates will vest in the
Reorganized Debtors, as applicable, free and clear of all Liens, Claims,
encumbrances and Interests. From and after the Effective Date, each Reorganized
Debtor may operate its business and use, acquire and dispose of property and
settle and compromise Claims or Interests arising post-Confirmation without
supervision by the Court and free of any restrictions of the Bankruptcy Code,
the Bankruptcy Rules or the Local Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan and the Confirmation Order.
2. DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS
Except as provided in the Confirmation Order, the rights
afforded under the Plan and the treatment of Claims and Interests under the Plan
will be in exchange for and in complete satisfaction, discharge and release of
all Claims and satisfaction or termination of all Interests, including any
interest accrued on Claims from the Petition Date. Except as provided in the
Plan or Confirmation Order, Confirmation will, as of the Effective Date: (a)
discharge the Debtors from all Claims or other debts that arose before the
Effective Date, and all debts of a kind specified in Section 502(g), 502(h) or
502(i) of the Bankruptcy Code, whether or not (i) a proof of claim based on such
debt is Filed or deemed Filed pursuant to Section 501 of the Bankruptcy Code,
(ii) a Claim based on such debt is Allowed pursuant to Section 502 of the
Bankruptcy Code, or (iii) the holder of a Claim based on such debt has accepted
the Plan; and (b) satisfy or terminate all Interests and other rights of Holders
of Interests.
UPON CONFIRMATION, THE PLAN WILL BE BINDING ON ALL HOLDERS OF
CLAIMS AGAINST AND INTERESTS IN EACH DEBTOR REGARDLESS OF WHETHER SUCH HOLDERS
VOTED TO ACCEPT THE PLAN.
3. DISCHARGE OF REORGANIZED DEBTORS AND INJUNCTION
Except as otherwise provided in the Plan or the Confirmation
Order: (i) on the Effective Date, each Reorganized Debtor shall be deemed
discharged and released to the fullest extent permitted by section 1141 of the
Bankruptcy Code from all Claims and Interests, including, but not limited to,
demands, liabilities, Claims and Interests that arose before the
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Confirmation Date and all debts of the kind specified in sections 502(g), 502(h)
or 502(i) of the Bankruptcy Code, whether or not: (A) a proof of Claim or proof
of Interest based on such debt or Interest is Filed or deemed Filed pursuant to
section 501 of the Bankruptcy Code, (B) a Claim or Interest based on such debt
or Interest is allowed pursuant to section 502 of the Bankruptcy Code or (C) the
Holder of a Claim or Interest based on such debt or Interest has accepted the
Plan; and (ii) all Persons shall be precluded from asserting against each
Reorganized Debtor, its successors, or its assets or properties any other or
further Claims or Interests based upon any act or omission, transaction, or
other activity of any kind or nature that occurred prior to the Confirmation
Date. Except as otherwise provided in the Plan or the Confirmation Order, the
Confirmation Order shall act as a discharge of any and all Claims against and
all debts and liabilities of the Reorganized Debtors, as provided in sections
524 and 1141 of the Bankruptcy Code, and such discharge shall void any judgment
against each Reorganized Debtor at any time obtained to the extent that it
relates to a Claim discharged.
All Persons that have held, currently hold or may hold a Claim
or other debt or liability or an Interest or other right of such Holders, are
permanently enjoined from taking any of the following actions on account of any
such Claims, debts or liabilities or Interests or rights: (a) commencing or
continuing in any manner any action or other proceeding against any of the
Debtors, the Informal Vendor Debt Committee (and each of its members in such
capacity), the Informal Noteholder Committee (and each of its members in such
capacity), the Official Committee (and each of its members in such capacity),
the Old Indenture Trustee and counsel and other professional persons retained by
the Debtors, the Informal Vendor Debt Committee, the Noteholder Committee, the
Official Committee, and the Old Indenture Trustee, and each of their respective
affiliates, current or former officers, directors, agents, employees and
representatives; (b) enforcing, attaching, collecting or recovering in any
manner any judgment, award, decree or order against any of the Debtors, the
Informal Vendor Debt Committee (and each of its members in such capacity), the
Informal Noteholder Committee (and each of its members in such capacity), the
Official Committee (and each of its members in such capacity), the Old Indenture
Trustee and counsel and other professional persons retained by any of the
Debtors, the Informal Vendor Debt Committee, the Informal Noteholder Committee,
the Official Committee, and the Old Indenture Trustee, and each of their
respective affiliates, current or former officers, directors, agents, employees
and representatives; (c) creating, perfecting or enforcing any Lien or
encumbrance against any of the Debtors, the Informal Vendor Debt Committee (and
each of its members in such capacity), the Informal Noteholder Committee (and
each of its members in such capacity), the Official Committee (and each of its
members in such capacity), the Old Indenture Trustee and counsel and other
professional persons retained by any of the Debtors, the Informal Vendor Debt
Committee, the Informal Noteholder Committee, the Official Committee, and the
Old Indenture Trustee, and each of their respective affiliates, current or
former officers, directors, agents, employees and representatives; (d) asserting
a setoff, right of subrogation or recoupment of any kind against any obligation
due to any of the Debtors, the Informal Vendor Debt Committee (and each of its
members in such capacity), the Informal Noteholder Committee (and each of its
members in such capacity), the Official Committee (and each of its members in
such capacity), the Old Indenture Trustee and counsel and other professional
persons retained by any of the Debtors, the Informal Vendor Debt Committee, the
Informal Noteholder Committee, the Official Committee, and the Old Indenture
Trustee, and each of their respective affiliates, current or former officers,
directors, agents, employees and representatives; and (e) commencing or
continuing any action, in any manner, in any place that does not comply with or
is inconsistent with the provisions of the Plan.
Any Person injured by any willful violation of such injunction
shall recover actual damages, including costs and attorneys' fees, and, in
appropriate circumstances, may recover punitive damages, from the willful
violator.
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M. RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the
occurrence of the Effective Date, the Court will retain such jurisdiction over
the Chapter 11 Cases after the Effective Date to the full extent permitted by
law, including, without limitation, jurisdiction to:
(i) Allow, disallow, determine, liquidate, classify,
subordinate, estimate or establish the priority or
secured or unsecured status of any Claim or Interest,
including the resolution of any request for payment
of any Administrative Claim, the resolution of any
objections to the allowance or priority of Claims or
Interests and the resolution of any dispute as to the
treatment necessary to reinstate a Claim pursuant to
the Plan;
(ii) Grant or deny any applications for allowance of
compensation or reimbursement of expenses authorized
pursuant to the Bankruptcy Code or the Plan, for
periods ending before the Effective Date;
(iii) Resolve any matters related to the assumption or
rejection of any executory contract or unexpired
lease to which any Debtor is a party or with respect
to which any Debtor may be liable, and to hear,
determine and, if necessary, liquidate any Claims
arising therefrom;
(iv) Ensure that distributions to Holders of Allowed
Claims or Allowed Interests are accomplished pursuant
to the provisions of the Plan;
(v) Decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters
and grant or deny any applications involving the
Debtors, the Reorganized Debtors or the Chapter 11
Cases that may be pending on the Effective Date;
(vi) Enter such Orders as may be necessary or appropriate
to implement or consummate the provisions of the Plan
and all contracts, instruments, releases, indentures
and other agreements or documents created in
connection with the Plan, this Disclosure Statement
or the Confirmation Order, except as otherwise
provided herein;
(vii) Resolve any cases, controversies, suits or disputes
that may arise in connection with the consummation,
interpretation or enforcement of the Plan or the
Confirmation Order, including the release and
injunction provisions set forth in and contemplated
by the Plan and the Confirmation Order, or any
entity's rights arising under or obligations incurred
in connection with the Plan or the Confirmation
Order;
(viii) Subject to any restrictions on modifications provided
in any contract, instrument, release, indenture or
other agreement or document created in connection
with the Plan, modify the Plan before or after the
Effective Date pursuant to section 1127 of the
Bankruptcy Code or modify this Disclosure Statement,
the Confirmation Order or any contract, instrument,
release, indenture or other agreement or document
created in connection with the Plan, this Disclosure
Statement or the Confirmation Order; or remedy any
defect or omission or reconcile any inconsistency in
any Court Order, the Plan, this Disclosure Statement,
the Confirmation Order or any contract, instrument,
release, indenture or other agreement or document
created in connection with the Plan, this Disclosure
Statement or the Confirmation Order, in such manner
as may be necessary or appropriate to
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consummate the Plan, to the extent authorized by the
Bankruptcy Code;
(ix) Issue injunctions, enter and implement other Orders
or take such other actions as may be necessary or
appropriate to restrain interference by any entity
with consummation, implementation or enforcement of
the Plan or the Confirmation Order;
(x) Enter and implement such Orders as are necessary or
appropriate if the Confirmation Order is for any
reason modified, stayed, reversed, revoked or
vacated;
(xi) Determine any other matters that may arise in
connection with or relating to the Plan, this
Disclosure Statement, the Confirmation Order or any
contract, instrument, release, indenture or other
agreement or document created in connection with the
Plan, this Disclosure Statement or the Confirmation
Order, except as otherwise provided in the Plan; and
(xii) Enter an Order concluding the Chapter 11 Cases.
The foregoing list is illustrative only and not intended to
limit in any way the Court's exercise of jurisdiction. If the Court abstains
from exercising jurisdiction or is otherwise without jurisdiction over any
matter arising out of the Chapter 11 Cases, including without limitation the
matters set forth in this Article, this Article shall have no effect upon and
shall not control, prohibit or limit the exercise of jurisdiction by any other
court having competent jurisdiction with respect to such matter.
N. MISCELLANEOUS PROVISIONS
1. EXEMPTION FROM TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, the
issuance, transfer or exchange of notes or equity securities under the Plan, the
creation of any mortgage, deed of trust or other security interest, the making
or assignment of any lease or sublease, or the making or delivery of any deed or
other instrument of transfer under, in furtherance of, or in connection with the
Plan, including, without limitation, any agreements of consolidation, deeds,
bills of sale or assignments executed in connection with any of the transactions
contemplated under the Plan shall not be subject to any stamp, real estate
transfer, mortgage recording or other similar tax.
2. PAYMENT OF STATUTORY FEES
All fees payable on or before the Effective Date pursuant to
section 1930 of Title 28 of the United States Code shall be paid on or before
the Effective Date. The Debtors will pay quarterly fees to the U.S. Trustee
until entry of a final decree. In addition, the Debtors will file
post-Confirmation quarterly reports in conformance with the U.S. Trustee
Guidelines.
3. MODIFICATION OR WITHDRAWAL OF THE PLAN
The Debtors reserve the right, in accordance with the
Bankruptcy Code, to amend, modify or withdraw the Plan prior to the entry of the
Confirmation Order. After the entry of the Confirmation Order, the Debtors may
amend or modify the Plan, or remedy any defect or omission or reconcile any
inconsistency in the Plan in such a manner as may be necessary to carry out the
purpose and intent of the Plan with the consent of the Official Committee (or,
if the Official Committee has disbanded, the Leap Creditor Trust Trustee) and
the Informal Vendor Debt Committee.
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4. GOVERNING LAW
Unless a rule of law or procedure is supplied by federal law
(including the Bankruptcy Code and Bankruptcy Rules), the laws of the State of
New York (without reference to the conflicts of laws provisions thereof) shall
govern the construction and implementation of the Plan and any agreements,
documents and instruments executed in connection with the Plan.
5. FILING OR EXECUTION OF ADDITIONAL DOCUMENTS
On or before the Effective Date, the Debtors shall file with
the Court or execute, as appropriate, such agreements and other documents as may
be necessary or appropriate to effectuate and further evidence the terms and
conditions of the Plan.
6. WITHHOLDING AND REPORTING REQUIREMENTS
In connection with the Plan and all instruments issued in
connection therewith and distributions thereon, to the extent applicable and
except as provided in Section 5.17(b) of the Plan, the Leap Creditor Trust
Trustee and the Reorganized Debtors shall comply with all withholding and
reporting requirements imposed by any federal, state, local or foreign taxing
authority and all distributions thereunder shall be subject to any such
withholding and reporting requirements.
7. WAIVER OF RULE 62(a) OF THE FEDERAL RULES OF CIVIL PROCEDURE
The Debtors may request that the Confirmation Order include
(a) a finding that Rule 62(a) of the Federal Rules of Bankruptcy Procedure shall
not apply to the Confirmation Order, and (b) authorization for the Debtors to
consummate the Plan immediately after the entry of the Confirmation Order.
8. HEADINGS
Headings used in the Plan are for convenience and reference
only and shall not constitute a part of the Plan for any purpose.
9. EXHIBITS AND SCHEDULES
All Exhibits and Schedules to the Plan and Disclosure
Statement are incorporated into and constitute a part of the Plan as if set
forth herein.
10. NOTICES
All notices, requests and demands hereunder to be effective
shall be in writing and unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when actually delivered or, in the case
of notice by facsimile transmission, when received and telephonically confirmed,
addressed as provided for in the Plan.
11. PLAN SUPPLEMENT
Forms of documents relating to the Amended Debtor Certificates
of Incorporation, Amended Debtor Bylaws, Leap Creditor Trust Agreement and New
Senior Notes Indenture shall be contained in the Plan Supplement and filed with
the Clerk of the Court at least 5 days prior to the date of the Confirmation
Hearing. Upon its filing with the Court, the Plan Supplement may be inspected
during normal Court hours. Holders of Claims may obtain a copy of the Plan
Supplement upon written request to counsel to the Debtors.
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12. CONFLICT
The terms of this Plan shall govern in the event of any
inconsistency with the summaries of the Plan set forth in the Disclosure
Statement.
13. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any Person named or
referred to in the Plan shall be binding on, and shall inure to the benefit of,
any heir, executor, trustee, administrator, successor or assign of such Person.
14. SATURDAY, SUNDAY OR LEGAL HOLIDAY
If any payment or act under the Plan is required to be made or
performed on a date that is not a Business Day, then the making of such payment
or the performance of such act may be completed on the next succeeding Business
Day, but shall be deemed to have been completed as of the required date.
15. POST-EFFECTIVE DATE EFFECT OF EVIDENCES OF CLAIMS OR INTERESTS
Notes, bonds, stock certificates and other evidences of Claims
against or Interests in the Debtors, and all Instruments of the Debtors (in
either case, other than those executed and delivered as contemplated hereby in
connection with the consummation of the Plan), shall, effective upon the
Effective Date, represent only the right to participate in the distributions
contemplated by the Plan.
16. SEVERABILITY OF PLAN PROVISIONS
If, prior to Confirmation, any term or provision of the Plan
that does not govern the treatment of Claims or Interests provided for herein or
the conditions to the Effective Date is held by the Court to be invalid, void,
or unenforceable, the Court shall have the power to alter and interpret such
term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held
to be invalid, void, or unenforceable, and such term or provision shall then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions of the
Plan will remain in full force and effect and will in no way be affected,
impaired, or invalidated by such holding, alteration, or interpretation. The
Confirmation Order shall constitute a judicial determination, and shall provide,
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.
17. BALLOTING
Each Holder of an Allowed Claim or an Allowed Interest
entitled to vote on the Plan will receive a Ballot. The Ballot will contain two
boxes, one indicating acceptance of the Plan and the other indicating rejection
of the Plan. Holders of Allowed Claims or Allowed Interests who elect to vote on
the Plan must mark one or the other box pursuant to the instructions contained
on the Ballot. Any executed Ballot that does not indicate acceptance or
rejection of the Plan will be deemed to be an acceptance of the Plan.
18. NO ADMISSIONS OR WAIVER OF OBJECTIONS
Notwithstanding anything herein to the contrary, nothing
contained herein or in the Plan shall be deemed as an admission by any Debtor,
the Official Committee or the Informal Vendor Debt Committee with respect to any
matter set forth herein including, without limitation,
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liability on any Claim or the propriety of any Claims classification. The
Debtors are not bound by any statements herein or in the Plan as judicial
admissions.
19. SURVIVAL OF SETTLEMENTS
All Court-approved settlements shall survive consummation of
the Plan, except to the extent that any provision of any such settlement is
inconsistent with the Plan, in which case the provisions of the Plan shall
supersede such inconsistent provision of such settlement.
SECTION VIII.
PROJECTIONS
The Debtors have developed financial projections to assess the
feasibility of the Reorganized Debtors generally. These projections and
valuations are based on a number of significant assumptions, including the
successful reorganization of the Debtors, an assumed Effective Date of September
30, 2003, and no significant downturn in the specific markets in which the
Debtors operate.
THE PROJECTIONS ARE BASED ON A NUMBER OF SIGNIFICANT
ASSUMPTIONS. ACTUAL OPERATING RESULTS AND VALUES MAY VARY.
Annexed to this Disclosure Statement as Exhibit G are
unaudited financial projections of the Reorganized Debtors prepared as of July
16, 2003 (the "Projections") and include updates by the Debtors to reflect the
declines in subscribers being experienced by the Debtors while in bankruptcy,
their post-petition financial performance and other factors. See "Description of
the Debtors' Business--Statement Regarding Financial Performance of Cricket for
April and May 2003" included at page 3 of the Disclosure Statement.
The Projections are dependent upon many factors over which the
Debtors do not have any control. No assurance can be given that any of the
assumptions on which the Projections are based will prove to be correct. The
Projections were not prepared with a view to public disclosure or in compliance
with (i) published guidelines of the SEC, (ii) the guidelines established by the
American Institute of Certified Public Accountants regarding projections or
(iii) GAAP. While presented with numerical specificity, such projections are
based upon a variety of assumptions that may not be realized relating to future
business and operations of the Reorganized Debtors and the integration of their
operations. The Projections are subject to uncertainties and contingencies, all
of which are difficult to predict, and many of which are beyond the control of
the Debtors. THE DEBTORS MAKE NO EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY
AS TO THE ATTAINABILITY OF THE PROJECTED FINANCIAL INFORMATION SET FORTH IN THE
PROJECTIONS, OR AS TO THE ACCURACY OR COMPLETENESS OF THE ASSUMPTIONS FROM WHICH
THAT PROJECTED INFORMATION IS DERIVED.
The Debtors believe the Projections illustrate the feasibility
of the Plan and of the Reorganized Debtors generally. The Projections reflect
the positive effects of substantially de-leveraging the Reorganized Debtors,
whose consolidated indebtedness will be reduced from approximately $2.5 billion
to approximately $426.7 million immediately following the Effective Date of the
Plan. The Projections show that Reorganized Leap would accumulate cash during
the seven-year projection period, with projected cash balances growing from
$112.6 million at the Effective Date to $169.4 million at the end of 2006 to
$263.1 million at the end of 2010, with the Reorganized Debtors repaying the
outstanding FCC Debt and New Senior Notes in full over the same period of time.
Reorganized Leap also would incur an aggregate of $647.4 million in capital
expenditures during this same period. The Projections also show that Reorganized
Leap would generate EBITDA of $83.6 million, $210.6 million and $344.6 million
in each of 2004,
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2006 and 2010, respectively, and net income (loss) of $(10.1 million), $83.5
million and $140.1 million in each of 2004, 2006 and 2010, respectively. Please
see the Projections attached as Exhibit G for more detailed information about
projected results.
SECTION IX.
CONFIRMATION PROCEDURE
A. SOLICITATION OF VOTES
The Debtors will solicit votes from Holders of Claims and
Interests in Classes entitled to vote (e.g., those classes that (a) are Impaired
and (b) are receiving property or Cash under the Plan). As to such Classes, the
Bankruptcy Code defines acceptance of a plan by a class of creditors as
acceptance by holders of at least two-thirds in dollar amount and more than
one-half in number of the Claims of that class that have timely voted to accept
or reject a plan.
A vote may be disregarded if the Court determines, after
notice and a hearing, that acceptance or rejection was not solicited or procured
in good faith or in accordance with the provisions of the Bankruptcy Code.
Any Holder of a Claim in an Impaired Class (i) whose Claim has
been listed by the Debtors in the Debtors' Schedules filed with the Court
(provided that such Claim has not been scheduled as disputed, contingent or
unliquidated) or (ii) who filed a proof of claim on or before June 28, 2003 (or,
if not filed by such date, any proof of claim filed within any other applicable
period of limitations or with leave of the Court), which Claim is not the
subject of an objection or request for estimation, is entitled to vote.
1. VOTING PROCEDURES FOR HOLDERS OF OLD LEAP NOTES
If you are a registered holder of Old Leap Notes
(collectively, "Voting Securities"), in each case, to the extent such holder is
entitled to vote ("Holder of Voting Securities"), you will receive the ballot
relating to the securities you hold of record. Registered Holders may include
brokerage firms, commercial banks, trust companies or other nominees. If such
entities do not hold Voting Securities for their own account, they should
provide copies of this Disclosure Statement and an appropriate Ballot to their
customers and to beneficial owners. Any beneficial owner who has not received
this Disclosure Statement or a Ballot should contact their brokerage firm or
nominee or the Voting Agent.
All votes to accept or reject the Plan must be cast by using
the Ballot or, in the case of a brokerage firm or other nominee holding Voting
Securities in its own name on behalf of a beneficial owner, the Master Ballot,
enclosed with this Disclosure Statement. Brokerage firms or other nominees
holding Voting Securities for the account of only one beneficial owner may use a
Ballot. Purported votes which are cast in any other manner will not be counted.
Ballots and Master Ballots must be received by the Voting Agent no later than
4:00 p.m., Pacific Time, on the Voting Deadline ([_______], 2003) which may be
extended at the Debtor's discretion or with Court approval. Ballots must be sent
to the Voting Agent at the following address:
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If by U.S. Mail:
Poorman-Douglas Corporation
P.O. Box 4390
Portland, Oregon 97208-4390
Tel: (503) 350-5800
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc., Cricket
Communications Inc. and Affiliated Entities
Claims Agent
If by Overnight or Hand Delivery:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (503) 350-5800
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc., Cricket
Communications Inc. and Affiliated Entities
Claims Agent
You may receive a Ballot relating to Voting Securities that
you did not beneficially own on the Distribution Record Date. You should
complete only the Ballot corresponding to each class of Voting Securities which
you beneficially owned on the Distribution Record Date. Holders who purchase or
whose purchase is registered after the Distribution Record Date, and who wish to
vote on the Plan must arrange with their seller to receive a proxy from the
Holder of record on the Distribution Record Date, a form of which is provided
with each Ballot and Master Ballot.
Holders of Voting Securities who elect to vote on the Plan
should complete and sign the Ballot in accordance with the instructions thereon
being sure to check the appropriate box entitled "Accept the Plan" or "Reject
the Plan." Holders may not split their vote on the Plan with respect to a
particular class of Voting Securities. A Holder must vote all securities
beneficially owned in a particular class in the same way (i.e., all "accept" or
all "reject") even if such Voting Securities are owned through more than one
broker or bank.
Again, delivery of the Ballots must be made to the Voting
Agent at Poorman-Douglas Corporation at the addresses set forth above. The
method of such delivery is at the election and risk of the Holder. If such
delivery is by mail, it is recommended that Holders use an air courier with a
guaranteed next day delivery or registered mail, properly insured, with return
receipt requested. In all cases, sufficient time should be allowed to assure
timely delivery.
You may receive multiple mailings of this Disclosure
Statement, especially if you own your Voting Securities through more than one
broker or bank. If you submit more than one Ballot for a class or issue of
Voting Securities because you beneficially own such Voting Securities through
more than one broker or bank, be sure to indicate in item [3] of the Ballot(s),
the names of all broker dealers or other intermediaries who hold Voting
Securities for you.
2. BENEFICIAL OWNERS OF OLD LEAP NOTES
All beneficial owners of Voting Securities on the Distribution
Record Date are eligible to vote on the Plan, whether the Voting Securities were
held on the Distribution Record Date in such beneficial owner's name or in the
name of a brokerage firm, commercial bank, trust company or other nominee.
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Any beneficial owner holding Voting Securities in its own name
can vote by completing and signing the enclosed Ballot and returning it directly
to the Voting Agent using the enclosed pre-addressed stamped envelope.
A beneficial owner holding Voting Securities in "street name"
(i.e., through a brokerage firm, bank, trust company or other nominee) or a
beneficial owner's authorized signatory (a broker or other intermediary having
power of attorney to vote on behalf of a beneficial owner) can vote by following
the instructions set forth below:
1. Fill in all the applicable information on the Ballot.
2. Sign the Ballot (unless the Ballot has already been
signed by the bank, trust company or other nominee).
3. Return the Ballot to the addressee in the
preaddressed, stamped envelope enclosed with the ballot. If no envelope was
enclosed, contact the Voting Agent for instructions.
Authorized signatories voting on behalf of more than one
beneficial owner must complete a separate Ballot for each such beneficial owner.
Any Ballot submitted to a brokerage firm or proxy intermediary will not be
counted until such brokerage firm or proxy intermediary (i) properly executes
and delivers such Ballot to the Voting Agent or (ii) properly completes and
delivers a corresponding Master Ballot to the Voting Agent.
By submitting a vote for or against the Plan, you are
certifying that you are the beneficial owner of the Voting Securities being
voted or an authorized signatory for such a beneficial owner. Your submission of
a Ballot will also constitute a request that you (or in the case of an
authorized signatory, the beneficial owner) be treated as the record holder of
such Voting Securities for purposes of voting on the Plan.
3. BROKERAGE FIRMS, BANKS AND OTHER NOMINEES
A brokerage firm, commercial bank, trust company or other
nominee which is the registered holder of a Voting Security for a beneficial
owner, or is a participant in a securities clearing agency and is authorized to
vote in the name of such securities clearing agency pursuant to an omnibus proxy
(as described below) and is acting for a beneficial owner, can vote on behalf of
such beneficial owner by (i) distributing a copy of this Disclosure Statement
and all appropriate Ballots to such owner, (ii) collecting all such Ballots,
(iii) completing a Master Ballot compiling the votes and other information from
the Ballots collected, and (iv) transmitting such completed Master Ballot to the
Voting Agent. A proxy intermediary acting on behalf of a brokerage firm or bank
may follow the procedures outlined in the preceding sentence to vote on behalf
of such beneficial owner. A brokerage firm, commercial bank, trust company or
other nominee which is the registered holder of a Voting Security for only one
beneficial owner also may arrange for such beneficial owner to vote by executing
the appropriate ballot and by distributing a copy of this Disclosure Statement
and such executed Ballot to such beneficial owner for voting and returning such
Ballot to the Voting Agent.
4. VOTING DEADLINE AND EXTENSIONS
In order to be counted for purposes of voting on the Plan, all
of the information requested by the applicable Ballot must be provided. Ballots
indicating acceptance or rejection of the Plan must be received by the Voting
Agent at its address set forth below no later than 4:00 p.m., Pacific Time, on
the Voting Deadline. The Debtors reserve the right, in their sole discretion, to
extend the Voting Deadline or the Court may extend the Voting Deadline, in which
case the term "Voting Deadline" shall mean the latest date on which a Ballot
will be accepted.
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5. WITHDRAWAL OF VOTES ON THE PLAN
The solicitation of acceptances of the Plan will expire on the
Voting Deadline. A properly submitted Ballot may be withdrawn by delivering a
written or facsimile transmission notice of withdrawal to the Voting Agent,
Poorman-Douglas, at the following address:
If by U.S. Mail:
Poorman-Douglas Corporation
P.O. Box 4390
Portland, Oregon 97208-4390
Tel: (503) 350-5800
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc., Cricket
Communications Inc. and Affiliated Entities
Claims Agent
If by Overnight or Hand Delivery:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (503) 350-5800
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc., Cricket
Communications Inc. and Affiliated Entities
Claims Agent
at any time prior to the Voting Deadline. Thereafter, withdrawal may be effected
only with the approval of the Court.
In order to be valid, a notice of withdrawal must (i) specify
the name of the Holder who submitted the votes on the Plan to be withdrawn; (ii)
contain a description of the Claim or Interest to which it relates and the
aggregate principal amount or number of shares represented by such Claim or
Interest; and (iii) be signed by the Holder in the same manner as on the Ballot.
The Debtors expressly reserve the absolute right to contest the validity of any
such withdrawals of votes on the Plan.
Any Holder who has previously submitted to Poorman-Douglas
prior to the Voting Deadline a properly completed Ballot may revoke and change
such vote by submitting to Poorman-Douglas prior to the Voting Deadline a
subsequent properly completed Ballot for acceptance or rejection of the Plan. In
the case where more than one timely, properly completed Ballot is received, only
the one which bears the latest date will be counted for purposes of determining
whether sufficient acceptances required to seek Confirmation of the Plan have
been received. If more than one Master Ballot is submitted and the later dated
Master Ballot(s) supplement rather than supersede the earlier Master Ballot(s),
please mark the subsequent Master Ballot(s) with the words "Additional Votes" or
such other language as is customarily used to indicate additional votes that are
not meant to revoke earlier votes.
6. VOTING AGENT
Poorman-Douglas has been appointed as Voting Agent for the
Plan. Questions and requests for assistance may be directed to the Voting Agent.
Requests for additional copies of this Disclosure Statement, the Ballots or the
Master Ballots should be directed to the Voting Agent.
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B. THE CONFIRMATION HEARING
The Bankruptcy Code requires the Court, after notice, to hold
a confirmation hearing. The Confirmation Hearing in respect of the Plan has been
scheduled for [___________], 2003 at 8:30 a.m., Pacific Time, before the
Honorable Louise DeCarl Adler at the United States Bankruptcy Court for the
Southern District of California, Jacob Weinberger U.S. Courthouse, 325 West F
Street, San Diego, California 92101. The Confirmation Hearing may be adjourned
from time to time by the Court without further notice except for an announcement
of the adjourned date made at the Confirmation Hearing. Any objection to
Confirmation must be made in writing and specify in detail the name and address
of the objector, all grounds for the objection and the amount of the Claim or
number of shares of Old Leap Common Stock or Interests held by the objector. Any
such objection must be filed with the Court and served so that it is received by
the Court and the following parties on or before [___________], 2003 at 4:00
p.m., Pacific Time:
Latham & Watkins LLP Kramer Levin Naftalis & Frankel LLP
Attorneys for the Debtors Attorneys for the Official Committee
633 West Fifth Street, Suite 4000 919 Third Avenue
Los Angeles, California 90071 New York, New York 10022
Attn: Robert A. Klyman Attn: Robert T. Schmidt
Andrews & Kurth L.L.P. Office of the United States Trustee
Attorneys for Informal Vendor Committee 402 West Broadway, Suite 600
805 Third Avenue San Diego, CA 92101
New York, New York 10022 Attn: Tiffany L. Carroll
Attn: Paul N. Silverstein
C. CONFIRMATION
This Disclosure Statement and the appropriate Ballot are being
distributed to all Holders of Claims and Interests who are entitled to vote on
the Plan. There is a separate Ballot designated for each Impaired Class in order
to facilitate vote tabulation; however, all Ballots are substantially similar in
form and substance and the term "Ballot" is used without intended reference to
the Ballot of any specific class of Claims or Interests.
The Bankruptcy Code requires that, in order to confirm the
Plan, the Court must make a series of findings concerning the Plan and the
Debtors, including, without limitation, that (i) the Plan has classified Claims
and Interests in a permissible manner, (ii) the Plan complies with applicable
provisions of the Bankruptcy Code, (iii) the Debtors have complied with
applicable provisions of the Bankruptcy Code, (iv) the Debtors have proposed
the Plan in good faith and not by any means forbidden by law, (v) the
disclosure required by section 1125 of the Bankruptcy Code has been made, (vi)
the Plan has been accepted by the requisite votes of creditors (except to the
extent that cramdown is available under section 1129(b) of the Bankruptcy
Code), (vii) the Plan is feasible and Confirmation is not likely to be followed
by the liquidation or the need for further financial reorganization of the
Debtors, (viii) the Plan is in the "best interests" of all Holders of Claims or
Interests in an Impaired Class in that it provides to such Holders on account
of their Claims or Interests property of a value, as of the Effective Date,
that is not less than the amount that such Holder would receive or retain in a
chapter 7 liquidation, unless each Holder of a Claim or Interest in such Class
has accepted the Plan, (ix) all fees and expenses payable under 28 U.S.C.
Section 1930, as determined by the Court at the hearing on Confirmation, have
been paid or the Plan provides for the payment of such fees on the Effective
Date, and (x) the Plan provides for the continuation after the Effective Date
of all retiree benefits, as defined in section 1114 of the Bankruptcy Code, at
the level established at any time prior to Confirmation pursuant to sections
1114(e)(1)(B) or 1114(g) of the Bankruptcy Code, for the duration of the period
that the Debtors have obligated themselves to provide such benefits.
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A plan is accepted by an impaired class of claims if holders
of at least two-thirds in dollar amount and more than one-half in number of
claims of that class vote to accept the plan. A plan is accepted by an impaired
class of interests if holders of at least two-thirds of the number of shares in
such class vote to accept the plan. Only those holders of claims or interests
who actually vote count in these tabulations.
In addition to this voting requirement, section 1129 of the
Bankruptcy Code requires that a plan be accepted by each holder of a claim or
interest in an impaired class or that the plan otherwise be found by the
bankruptcy court to be in the best interests of each holder of a claim or
interest in such class. In addition, each impaired class must accept the plan
for the plan to be confirmed without application of the "fair and equitable" and
"unfair discrimination" tests in section 1129(b) of the Bankruptcy Code
discussed below.
The Bankruptcy Code contains provisions authorizing the
confirmation of a plan even if it is not accepted by all impaired classes, as
long as at least one impaired class of claims (without including any acceptance
of the Plan by an insider) has accepted it. These so-called "cramdown"
provisions are set forth in section 1129(b) of the Bankruptcy Code. As indicated
above, a plan may be confirmed under the cramdown provisions if, in addition to
satisfying the other requirements of section 1129 of the Bankruptcy Code, it (i)
is "fair and equitable" and (ii) "does not discriminate unfairly" with respect
to each class of claims or interests that is impaired under, and has not
accepted, the plan. The "fair and equitable" standard, also known as the
"absolute priority rule," requires, among other things, that unless a dissenting
class of claims or a class of interests receives full compensation for its
allowed claims or allowed interests, no holder of claims or interests in any
junior class may receive or retain any property on account of such claims. The
Bankruptcy Code establishes different "fair and equitable" tests for secured
creditors, unsecured creditors and equity holders, as follows:
(a) Secured Creditors: either (i) each impaired secured creditor
retains its liens securing its secured claim and receives on
account of its secured claim deferred Cash payments having a
present value equal to the amount of its allowed secured
claim, (ii) each impaired secured creditor realizes the
"indubitable equivalent" of its allowed secured claim, or
(iii) the property securing the claim is sold free and clear
of liens with such liens to attach to the proceeds, and the
liens against such proceeds are treated in accordance with
clause (i) or (ii) of this subparagraph (a).
(b) Unsecured Creditors: either (i) each impaired unsecured
creditor receives or retains under the plan of reorganization
property of a value equal to the amount of its allowed claim,
or (ii) the holders of claims and interests that are junior to
the claims of the nonaccepting class do not receive any
property under the plan of reorganization on account of such
claims and interests.
(c) Equity Holders: either (i) each equity holder will receive or
retain under the plan of reorganization property of a value
equal to the greater of (a) the fixed liquidation preference
or redemption price, if any, of such stock or (b) the value of
the stock, or (ii) the holders of interests that are junior to
the nonaccepting class will not receive any property under the
plan of reorganization.
The "fair and equitable" standard has also been interpreted to prohibit any
class senior to a dissenting class from receiving under a plan more than 100% of
its allowed claims. The requirement that a plan not "discriminate unfairly"
means, among other things, that a dissenting class must be treated substantially
equally with respect to other classes of equal rank. Attached as Exhibit M is a
summary of a valuation analysis by UBS Securities LLC, financial advisor to the
Debtors. Based upon the review and analysis set forth in Exhibit M, and subject
to the assumptions, limitations and qualifications summarized in Exhibit M, UBS
concluded on July 17, 2003 that the estimated going concern enterprise value of
Reorganized Leap, as of the
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assumed Effective Date of September 30, 2003, would be in a range between $560
million and $683 million. Based on this estimate and assuming outstanding
indebtedness of the Reorganized Debtors as of September 30, 2003 of $426.9
million, the Debtors believe the estimated going concern equity value of
Reorganized Leap as of such date would be in a range between $133.1 million and
$256.1 million. Based on the analysis by UBS, the Debtors believe that the plan
satisfies the "fair and equitable" standard.
The Debtors believe that, if approved, the Plan will need to
be crammed down over the dissent of certain Classes of Claims and Interests, in
view of the treatment proposed for such Classes. To the extent necessary and
appropriate, the Debtors intend to amend the Plan to permit cramdown of
dissenting Classes of Claims or Interests. There can be no assurance, however,
that the requirements of section 1129(b) of the Bankruptcy Code would be
satisfied even if the Plan treatment provisions were amended or withdrawn as to
one or more Classes. The Debtors believe that the treatment under the Plan of
the Holders of Claims and Interests will satisfy the "fair and equitable" test
since, although no distribution will be made in respect of Interests in such
Classes and, as a result, such Classes will be deemed pursuant to Section 1126
of the Bankruptcy Code to have rejected the Plan, no Class junior to such
non-accepting Classes will receive or retain any property under the Plan.
In addition, the Debtors do not believe that the Plan unfairly
discriminates against any Class that may not accept or otherwise consent to the
Plan. A plan of reorganization "does not discriminate unfairly" if (i) the legal
rights of a nonaccepting class are treated in a manner that is consistent with
the treatment of other classes whose legal rights are similarly situated to
those of the nonaccepting class, and (ii) no class receives payments in excess
of that which it is legally entitled to receive for its claims or interests. The
Debtors believe the Plan does not discriminate unfairly.
THE DEBTORS INTEND TO SEEK CONFIRMATION OF THE PLAN UNDER
SECTION 1129(b) OF THE BANKRUPTCY CODE.
Subject to the conditions set forth in the Plan, a
determination by the Court that the Plan is not confirmable pursuant to section
1129 of the Bankruptcy Code will not limit or affect the Debtors' ability to
modify the Plan to satisfy the Confirmation requirements of section 1129 of the
Bankruptcy Code.
1. FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires as a
condition for Confirmation that the Court determine that the Plan is not likely
to be followed by a liquidation, or the need for further financial
reorganization, of the Debtors or the Reorganized Debtors, unless such
liquidation or reorganization is proposed in the Plan. The Debtors believe that
the Plan satisfies this requirement. The Debtors have prepared the Projections
which are attached to this Disclosure Statement as Exhibit G. The Debtors
believe that throughout the forecast period ending December 31, 2010, assuming
the underlying assumptions are realized, Cash provided by operations combined
with availability under the post-Effective Date borrowings will be adequate to
meet capital expenditure and debt service requirements.
The Debtors believe the Projections illustrate the feasibility
of the Plan and of the Reorganized Debtors generally. The Projections reflect
the positive effects of substantially de-leveraging the Reorganized Debtors,
whose consolidated indebtedness will be reduced from approximately $2.5 billion
to approximately $426.7 million immediately following the Effective Date of the
Plan. The Projections show that Reorganized Leap would accumulate cash during
the seven-year projection period, with projected cash balances growing from
$112.6 million at the Effective Date to $169.4 million at the end of 2006 to
$263.1 million at the end of 2010, with the Reorganized Debtors repaying the
outstanding FCC Debt and New Senior Notes in full over
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the same period of time. Reorganized Leap also would incur an aggregate of
$647.4 million in capital expenditures during this same period. The Projections
also show that Reorganized Leap would generate EBITDA of $83.6 million, $210.6
million and $344.6 million in each of 2004, 2006 and 2010, respectively, and net
income (loss) of $(10.1 million), $83.5 million and $140.1 million in each of
2004, 2006 and 2010, respectively. Please see the Projections attached as
Exhibit G for more detailed information about projected results.
2. BEST INTERESTS TEST/LIQUIDATION ANALYSIS
With respect to each Impaired Class of Claims and Interests,
Confirmation of the Plan requires that each Holder of a Claim or Interest either
(i) accept the Plan or (ii) receive or retain under the Plan property of a
value, as of the Effective Date, that is not less than the value such Holder
would receive or retain if the Debtors were liquidated under chapter 7 of the
Bankruptcy Code. To determine what Holders of Claims and Interests of each
Impaired Class would receive if the Debtors were liquidated under chapter 7, the
Bankruptcy Court must determine the dollar amount that would be generated from
the liquidation of the Debtors' assets and properties in the context of a
chapter 7 liquidation case. The Cash amount that would be available for
satisfaction of Claims and Interests would consist of the proceeds resulting
from the disposition of the unencumbered assets and properties of the Debtors
augmented by the unencumbered Cash held by the Debtors at the time of the
commencement of the liquidation case. Such Cash amount would be reduced by the
amount of the costs and expenses of the liquidation and by such additional
Administrative and Priority Claims that might result from the termination of the
Debtors' business and the use of chapter 7 for the purposes of liquidation.
The Debtors' cost of liquidation under chapter 7 would include
the fees payable to a trustee in bankruptcy, as well as those fees that might be
payable to attorneys and other professionals that such a trustee might engage.
In addition, claims would arise by reason of the breach or rejection of
obligations incurred and leases and executory contracts assumed or entered into
by the Debtors during the pendency of the Chapter 11 Cases. The foregoing types
of claims and other claims that might arise in a liquidation case or result from
the pending Chapter 11 Cases, including unpaid expenses incurred by the Debtors
during the Chapter 11 Cases such as compensation for attorneys, financial
advisors and accountants, would be paid in full from the liquidation proceeds
before the balance of those proceeds would be made available to pay prepetition
Claims.
To determine if the Plan is in the best interests of each
Impaired Class, the present value of the distributions from the proceeds of a
liquidation of the Debtors' unencumbered assets and properties, after
subtracting the amounts attributable to the foregoing Claims, are then compared
with the value of the property offered to such Classes of Claims and Interests
under the Plan.
After considering the effects that a chapter 7 liquidation
would have on the ultimate proceeds available for distribution to creditors in
the Chapter 11 Cases including (i) the increased costs and expenses of a
liquidation under chapter 7 from fees payable to a trustee in bankruptcy and
professional advisors to such trustee, (ii) the erosion in value of assets in a
chapter 7 case in the context of the expeditious liquidation required under
chapter 7 and the "forced sale" atmosphere that would prevail and (iii) the
substantial increases in Claims which would be satisfied on a priority basis or
on parity with creditors in the Chapter 11 Cases, the Debtors have determined
that Confirmation of the Plan will provide each Holder of an Allowed Claim or
Interest with a recovery that is not less than such Holder would receive
pursuant to liquidation of the Debtors under chapter 7.
The Debtors also believe that the value of any distributions
to each Class of Allowed Claims in a chapter 7 case would be less than the value
of distributions under the Plan because such distributions in a chapter 7 case
would not occur for a substantial period of time. It
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is likely that distribution of the proceeds of the liquidation could be delayed
for two years after the completion of such liquidation in order to resolve
Claims and prepare for distributions. In the likely event litigation was
necessary to resolve Claims asserted in the chapter 7 case, the delay could be
prolonged.
The Debtors' Liquidation Analysis is attached hereto as
Exhibit F. The information set forth in Exhibit F provides a summary of the
liquidation values of the Debtors' assets, assuming a chapter 7 liquidation in
which a trustee appointed by the Court would liquidate the assets of the
Debtors' Estates. Reference should be made to the Liquidation Analysis for a
complete discussion and presentation of the Liquidation Analysis.
Underlying the Liquidation Analysis are a number of estimates
and assumptions that, although developed and considered reasonable by
management, are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the Debtors and their
management. The Liquidation Analysis is also based on assumptions with regard to
liquidation decisions that are subject to change. Accordingly, the values
reflected might not be realized if the Debtors were, in fact, to undergo such a
liquidation. The chapter 7 liquidation period is assumed to be a period of more
than one year, allowing for, among other things, the (i) discontinuation of
operations, (ii) selling of assets and (iii) collection of receivables.
SECTION X.
CONFIRMATION AND EFFECTIVE DATE CONDITIONS
A. CONDITIONS TO CONFIRMATION
The conditions to Confirmation shall be the following:
(a) A finding by the Court that the requirements of 11
U.S.C. Section 1129 have been satisfied;
(b) The Confirmation Order shall (i) be acceptable in form and
substance to the Debtors (in the Debtors' sole and absolute discretion), the
Informal Vendor Debt Committee and the Official Committee and (ii) expressly
authorize and direct the Debtors to perform the actions that are conditions to
the effectiveness of the Plan;
(c) Each of the events and actions required by the Plan to
occur or to be taken prior to Confirmation shall have occurred or have been
taken, or the Debtors or the party whose obligations are conditioned by such
occurrences and/or actions, as applicable, shall have waived such occurrences or
actions;
(d) Holders of at least two-thirds in dollar amount of the
Allowed Leap Class 4 General Unsecured Claims that actually vote on the Plan
shall have voted to accept the Plan; and
(e) The Confirmation Order shall have been entered on or
before [October 31], 2003.
B. CONDITIONS TO INITIAL DISTRIBUTION DATE
The conditions to the Initial Distribution Date shall be the
following: the Confirmation Order shall (i) be acceptable in form and substance
to the Debtors, the Informal Vendor Debt Committee and the Official Committee;
(ii) expressly authorize the Debtors to perform the actions that are conditions
to the effectiveness of the Plan; and (iii) shall be entered by the Court.
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C. CONDITIONS TO EFFECTIVE DATE
The Plan shall not become effective unless and until it has
been confirmed and the following conditions have been satisfied in full or
waived: (1) the Confirmation Order in a form satisfactory to the Debtors shall
have become a Final Order; (2) all authorizations, consents and regulatory
approvals (including, without limitation, any approvals required under
regulations relating to the change in ownership of the Debtors upon the
Effective Date) required (if any) for the Plan's effectiveness shall have been
obtained including, without limitation, all FCC approvals and consents in form
and substance reasonably acceptable to the Informal Vendor Debt Committee; (3)
the New Senior Notes Indenture has been qualified under the Trust Indenture Act
of 1939, as amended, if required; (4) the Debtors shall have purchased, at
Cricket's expense, directors' and officers' liability insurance for the
directors and officers of the Reorganized Debtors in form and amounts reasonably
acceptable to the Informal Vendor Debt Committee; and (5) all other actions and
documents necessary to implement the treatment of Claims and Interests shall
have been effected or executed or, if waivable, waived by the Person or Persons
entitled to the benefit thereof. The occurrence of the Effective Date is not a
condition precedent to the occurrence of the Initial Distribution Date.
D. WAIVER OF CONDITIONS
The Debtors, the Official Committee, and/or the Informal
Vendor Debt Committee, as applicable, may waive any or all of the other
conditions set forth in the Plan without leave of or order of the Court and
without any formal action. No waiver of the condition set forth in Section
X.A(d) above shall be effective without the prior written consent of the
Official Committee. The Debtors reserve the right to amend or revoke the Plan.
Although the Plan is styled as a joint Plan, the Debtors reserve the right to
proceed with Confirmation under the Plan for one or more Debtors but not all
Debtors.
E. EFFECT OF FAILURE OF CONDITIONS
Except as provided in the next paragraph, in the event that
the Effective Date does not occur within one year following Confirmation, upon
notification submitted by the Debtors to the Court: (a) the Confirmation Order
shall be vacated, (b) no additional distributions under the Plan shall be made,
(c) the Debtors and all Holders of Claims and Interests shall be restored to the
status quo ante as of the day immediately preceding the Confirmation Date as
though the Confirmation Date had never occurred, and (d) the Debtors'
obligations with respect to the Claims and Interests shall remain unchanged
(except to the extent of any post-Confirmation pre-Effective Date payments) and
nothing contained in the Plan shall constitute or be deemed a waiver or release
of any Claims or Interests by or against the Debtors or any other Person or to
prejudice in any manner the rights of the Debtors or any Person in any further
proceedings involving the Debtors.
Notwithstanding anything set forth above, if the Debtors
notify the Court that the Effective Date will not occur in accordance with the
procedures set forth above, and the Initial Distribution Date has already
occurred at the time of such notification, (i) the Holders of Allowed Claims
against Leap and the Leap Creditor Trust will be entitled to retain all assets
that have been transferred to them on the Initial Distribution Date or
thereafter pursuant to the Plan prior to such notification (including but not
limited to the Leap General Unsecured Claim Cash Distribution and the Cash
proceeds of any Leap Creditor Trust Assets to the extent such Leap Creditor
Trust Assets were converted to Cash prior to such notification), (ii) the Leap
Creditor Trust shall retain the right to receive a distribution of equity
securities of the parent company of the reorganized Debtors with a value
equivalent to the value of the proposed Leap General Unsecured Claim Equity
Distribution under the Plan, in a manner reasonably acceptable to the Official
Committee and the Informal Vendor Debt Committee, if and to the extent that one
or more of the Debtors reorganize their businesses under a plan of
reorganization other than the
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Plan; provided, that no such equity securities will be distributed to the Leap
Creditor Trust prior to the effective date of any such plan; and (iii) Leap, its
Estate and its creditors shall be entitled to the benefit of the Intercompany
Releases from the non-Leap Debtors and their Estates and the Holders of Old
Vendor Debt, as described in the Plan. In exchange, Leap, its Estate and the
Holders of Leap General Unsecured Claims shall be deemed to implement the
Intercompany Releases and to release the non-Leap Debtors and their creditors
(including the Holders of Old Vendor Debt) from all Intercompany Claims and
Litigation Claims (arising out of or related to intercompany transfers) held or
asserted by Leap and/or the Holders of Leap General Unsecured Claims as of the
Initial Distribution Date. Upon the implementation of the Intercompany Releases
as of the Initial Distribution Date, all non-Leap Debtors and their Estates, the
Holders of Old Vendor Debt, and all Holders of Claims or Interests against such
non-Leap Debtors claiming through such non-Leap Debtors shall be deemed to have
waived any rights or Claims against the Leap Creditor Trust Assets and the Leap
General Unsecured Claim Cash Distribution, and, subject to the satisfaction of
all Allowed Administrative Claims against Leap and Allowed Priority Claims
against Leap, only Holders of Leap General Unsecured Claims shall have a right
against the Leap Creditor Trust Assets, whether or not the Effective Date
occurs.
F. ORDER DENYING CONFIRMATION
If an order denying Confirmation of the Plan is entered, then
the Plan shall be null and void in all respects, and nothing contained in the
Plan shall (a) constitute a waiver or release of any Claims against or Interests
in the Debtors; (b) prejudice in any manner the rights of the Holder of any
Claim against, or Interest in, the Debtors; (c) prejudice in any manner any
right, remedy or claim of the Debtors; or (d) be deemed an admission against
interest by the Debtors, the Informal Vendor Debt Committee or the Official
Committee, or any committees' respective members.
SECTION XI.
ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. LIQUIDATION UNDER CHAPTER 7
If no plan is confirmed, the Chapter 11 Cases may be converted
to cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee
would be elected to liquidate the Debtors' assets for distribution in accordance
with the priorities established by chapter 7. A discussion of the effects that a
chapter 7 liquidation would have on the recoveries of holders of Claims and
Interests and the Debtors' liquidation analysis are set forth herein. The
Debtors, the Informal Vendor Debt Committee and the Official Committee believe
that liquidation under chapter 7 would result in smaller distributions being
made to creditors than those provided for in the Plan because of (a) the
likelihood that the Debtors' assets would have to be sold or otherwise disposed
of in a less orderly fashion over a shorter period of time, (b) additional
administrative expenses involved in the appointment of a trustee, and (c)
additional expenses and claims, some of which would be entitled to priority,
which would be generated during the liquidation and from the rejection of leases
and other executory contracts in connection with a cessation of the Debtors'
operations.
B. ALTERNATIVE PLANS OF REORGANIZATION
If the Plan is not confirmed, the Debtors could attempt to
formulate a different plan. Such a plan might involve either a reorganization
and continuation of the Debtors' businesses or orderly liquidation of their
assets. With respect to an alternative plan, the Debtors have explored various
alternatives in connection with the formulation and development of the Plan. The
Debtors believe that the Plan, as described herein, enables creditors to realize
the most
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value under the circumstances. However, in a liquidation under chapter 11, the
Debtors' assets would be sold in an orderly fashion over a more extended period
of time than in a liquidation under chapter 7, possibly resulting in somewhat
greater (but indeterminate) recoveries than would be obtained in chapter 7.
Further, if a trustee were not appointed, because such appointment is not
required in a chapter 11 case, the expenses for professional fees would most
likely be lower than those incurred in a chapter 7 case. Although preferable to
a chapter 7 liquidation, the Debtors believe that any alternative liquidation
under chapter 11 is a much less attractive alternative to creditors and Interest
holders than the Plan because of the greater return provided by the Plan.
C. POST-CONFIRMATION CONVERSION/DISMISSAL
A creditor or party in interest may bring a motion to convert
or dismiss the Chapter 11 Cases under Section 1112(b), after the Plan is
confirmed if there is a default in performance under the Plan. If the Court
orders the case converted to chapter 7 after the Plan is confirmed, then all
property that had been property of the chapter 11 Estates, and that has not
been disbursed pursuant to the Plan, will revest in the chapter 7 estates. The
automatic stay will be reimposed upon the revested property, but only to the
extent that relief from stay was not previously authorized by the Court during
these cases.
The Confirmation Order may also be revoked under very limited
circumstances. The Court may revoke the Confirmation Order if the Confirmation
Order was procured by fraud and if a party in interest brings an adversary
proceeding to revoke Confirmation within 180 days after the entry of the
Confirmation Order.
D. FINAL DECREE
Once the Estates have been fully administered as referred to
in Bankruptcy Rule 3019, Reorganized Cricket, or such other party as the Court
shall designate in the Plan Confirmation Order, shall file a motion with the
Court to obtain a final decree to close the Chapter 11 Cases.
SECTION XII.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain material federal
income tax consequences expected to result from the consummation of the Plan.
This discussion is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Tax Code"), applicable Treasury Regulations, judicial
authority and current administrative rulings and pronouncements of the Internal
Revenue Service (the "Service"). There can be no assurance that the Service will
not take a contrary view. No ruling from the Service has been or will be sought
nor will any counsel provide a legal opinion as to any of the expected tax
consequences set forth below.
Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to the Holders of Leap
General Unsecured Claims and Old Vendor Debt (collectively, the "Holders"), Leap
and its subsidiaries (collectively, the "Debtor Group") and Reorganized Leap and
its subsidiaries (collectively, the "Reorganized Debtor Group"). It cannot be
predicted whether any tax legislation will be enacted or, if enacted, whether
any tax law changes contained therein would affect the tax consequences to the
Holders, the Debtor Group or the Reorganized Debtor Group.
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The following discussion is for general information only and
describes the anticipated tax consequences to only those Holders that are
entitled to vote on the Plan. The tax treatment of a Holder may vary depending
upon such Holder's particular situation. This discussion assumes that Holders of
Leap General Unsecured Claims and Old Vendor Debt (collectively, the "Old
Investment Securities") have held such property as "capital assets" within the
meaning of Section 1221 of the Tax Code (generally, property held for
investment) and will also hold the New Leap Common Stock and the New Senior
Notes as "capital assets." This discussion also assumes that the New Senior
Notes are properly treated as indebtedness for federal income tax purposes. This
summary does not address all of the tax consequences that may be relevant to a
Holder, such as the potential application of the alternative minimum tax, nor
does it address the federal income tax consequences to Holders subject to
special treatment under the federal income tax laws, such as brokers or dealers
in securities or currencies, certain securities traders, tax-exempt entities,
financial institutions, insurance companies, foreign corporations, foreign
trusts, foreign estates, Holders who are not citizens or residents of the United
States, Holders that hold the Old Investment Securities as a position in a
"straddle" or as part of a "synthetic security," "hedging," "conversion" or
other integrated instrument, Holders that have a "functional currency" other
than the United States dollar and Holders that have acquired the Old Investment
Securities in connection with the performance of services. EACH HOLDER SHOULD
CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO IT OF THE PLAN,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN
TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTOR GROUP
CANCELLATION OF INDEBTEDNESS AND REDUCTION OF TAX ATTRIBUTES
Leap generally will realize cancellation of indebtedness
("COI") income on the exchange of Leap General Unsecured Claims for Cash and
other property of Leap to the extent that the sum of Cash and the fair market
value of any property received by the Holders of Leap General Unsecured Claims
is less than the adjusted issue price (plus the amount of any accrued but unpaid
interest) of the Leap General Unsecured Claims discharged thereby. The adjusted
issue price of the Leap General Unsecured Claims will be equal to their issue
price, reduced by the amount of any payments previously made thereon that were
not payments of "qualified stated interest." "Qualified stated interest" is
generally the stated interest on a debt instrument that is unconditionally
payable in Cash or property (other than debt instruments of the issuer) at least
annually at a single fixed rate. Leap will also realize COI income on the
discharge of other existing indebtedness to the extent that such indebtedness is
satisfied with an amount of Cash and other property of Leap that is less than
the adjusted issue price (plus the amount of any accrued but unpaid interest) of
such indebtedness.
Cricket generally will realize COI income to the extent that
the sum of (i) the issue price of the New Senior Notes and (ii) the fair market
value of the New Leap Common Stock received by Holders of Old Vendor Debt is
less than the adjusted issue price (plus the amount of any accrued but unpaid
interest) of such Old Vendor Debt discharged thereby. The adjusted issue price
of the Old Vendor Debt will be equal to its issue price, reduced by the amount
of any payments previously made thereon that were not payments of qualified
stated interest. Cricket will also realize COI income on the discharge of other
existing indebtedness to the extent that such indebtedness is satisfied with an
amount of Cash and other property of Cricket that is less than the adjusted
issue price (plus the amount of any accrued but unpaid interest) of such
indebtedness.
Although not free from doubt, the Debtor Group believes that
guarantee obligations among members of the Debtor Group cancelled pursuant to
the Plan will not be treated as existing indebtedness forgiven in the
implementation of the Plan for purposes of the COI income calculation. The
determination of whether the cancellation of a guarantee obligation
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gives rise to COI income should be based on whether the guarantor's net worth
increased as a result of the cancellation (not merely the prevention of a
decrease in the guarantor's net worth) or whether it is more probable than not
that the guarantor would be called upon to pay the guaranteed obligation in the
amount claimed. If any guarantee obligations among the members of the Debtor
Group are treated as indebtedness for purposes of the COI income determination,
the guarantor would realize COI income on the forgiveness. However, the Debtor
Group also believes, although not free from doubt, that the guarantor and the
debtor on the underlying guaranteed obligation would not both be required to
realize COI income with respect to a single obligation and any COI income
realized by a guarantor would only result in a reallocation of the total amount
of COI income from one member (the debtor member) to another (the guarantor
member).
Under Section 108 of the Tax Code, however, COI income will
not be recognized if the COI income occurs in a case brought under the
Bankruptcy Code, provided the taxpayer is under the jurisdiction of the court in
such case and the cancellation of indebtedness is granted by the court or is
pursuant to a plan approved by the court (the "Bankruptcy Exception").
Accordingly, because the cancellation of Leap's and Cricket's indebtedness will
occur in a case brought under the Bankruptcy Code, Leap and Cricket will be
under the jurisdiction of the court in such case and the cancellation of Leap's
and Cricket's indebtedness will be pursuant to the Plan, Leap and Cricket will
not be required to recognize any COI income realized as a result of the
implementation of the Plan.
Under Section 108(b) of the Tax Code, a taxpayer that does not
recognize COI income under the Bankruptcy Exception will be required to reduce
certain tax attributes, including its net operating losses and loss
carryforwards ("NOLs") (and certain other losses, credits and carryforwards, if
any) and its tax basis in its assets (but not below the amount of liabilities
remaining immediately after the discharge of indebtedness), in an amount
generally equal to the amount of COI income excluded from income under the
Bankruptcy Exception. Such taxpayer may elect under Section 108(b)(5) of the Tax
Code (the "Section 108(b)(5) Election") to avoid the prescribed order of
attribute reduction (which begins first with NOLs for the taxable year of the
discharge and NOL carryovers to such taxable year) and instead reduce the basis
of depreciable property first. The Section 108(b)(5) Election will extend to and
reduce the basis of the stock of any subsidiary of the taxpayer if such
subsidiary consents to a concomitant reduction in the basis of its depreciable
property. If the taxpayer makes a Section 108(b)(5) Election, the limitation
prohibiting the reduction of asset basis below the amount of its remaining
undischarged liabilities does not apply to the basis reduction resulting from
the Section 108(b)(5) Election. Leap and Cricket have not yet determined whether
they will make the Section 108(b)(5) Election.
It is not clear whether any reduction in tax attributes should
occur on a separate company or consolidated group basis or whether the same
separate company or consolidated group approach should apply to each tax
attribute. Because the Leap General Unsecured Claims are obligations of Leap, if
attribute reduction is applied on a separate company basis, only the tax
attributes of Leap (which with respect to the Debtor Group's consolidated NOL
may be limited to Leap's share thereof) would be reduced with respect to the COI
income realized on the discharge of the Leap General Unsecured Claims.
Similarly, because the Old Vendor Debt is an obligation of Cricket, attribute
reduction applied on a separate company basis would only require the tax
attributes of Cricket (which with respect to the Debtor Group's consolidated NOL
may be limited to Cricket's share thereof) to be reduced. Although the Service's
current position with respect to NOLs appears to be that attribute reduction
applies to a consolidated NOL on a consolidated group basis, it appears that a
taxpayer may still apply attribute reduction on a separate company basis. The
Debtor Group is still determining whether the reduction of tax attributes on a
separate company basis will yield a different result than the reduction of tax
attributes on a consolidated group basis, although a recent proposal in the U.S.
Senate would require, if enacted, the Debtor Group to reduce tax attributes on a
consolidated basis. However,
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regardless of whether the Debtor Group's tax attributes are reduced on a
separate company or consolidated group basis, substantially all, if not all, of
the Debtor Group's NOLs may be eliminated (assuming a Section 108(b)(5) Election
is not made) as a result of the consummation of the Plan.
CCH would likely be required to recognize income if the amount
of the COI income realized by Cricket as a result of the consummation of the
Plan exceeds the amount of its tax attributes available for reduction under
Section 108 of the Tax Code. A parent corporation in a consolidated group has an
"excess loss account" ("ELA") when its basis in the stock of its subsidiary is
reduced under the intercompany adjustment rules for members of consolidated
groups and the reductions exceed the parent's basis in the subsidiary's stock. A
parent corporation is required to include the amount of an ELA into income if
certain events occur, for example, when the parent's stock in its subsidiary
becomes worthless. If COI income realized by a subsidiary exceeds the tax
attributes available for reduction under Section 108 of the Tax Code, the
parent's stock in such subsidiary is deemed worthless and the parent's ELA in
such subsidiary must be included into income by the parent. CCH may have an ELA
with respect to its interest in Cricket. CCH would be required to include its
ELA with respect to its Cricket stock into income if Cricket realizes COI income
as a result of the consummation of the Plan in excess of tax attributes
available for reduction under Section 108 of the Tax Code.
SECTION 382 LIMITATIONS ON NOLs
Under Section 382 of the Tax Code, if a corporation or a
consolidated group with NOLs (a "Loss Corporation") undergoes an "ownership
change," the use of such NOLs (and certain other tax attributes) will generally
be subject to an annual limitation as described below. In general, an "ownership
change" occurs if the percentage of the value of the Loss Corporation's stock
(including the parent corporation in a consolidated group) owned by one or more
direct or indirect "five percent shareholders" has increased by more than 50
percentage points over the lowest percentage of that value owned by such five
percent shareholder or shareholders at any time during the applicable "testing
period" (generally, the shorter of (i) the three-year period preceding the
testing date or (ii) the period of time since the most recent ownership change
of the corporation). Leap believes the Plan will trigger an ownership change of
Leap on the Effective Date.
Except as otherwise discussed below, a Loss Corporation's use
of NOLs (and certain other tax attributes) after an "ownership change" will
generally be limited annually to the product of the long-term tax-exempt rate
(as published by the Service for the month in which the "ownership change"
occurs) and the value of the Loss Corporation's outstanding stock immediately
before the ownership change (excluding certain capital contributions) (the
"Section 382 Limitation"). However, the Section 382 Limitation for a taxable
year any portion of which is within the five-year period following the date of
the "ownership change" will be increased by the amount of any "recognized
built-in gains" for such taxable year. The increase in a year cannot exceed the
"net unrealized built-in gain" (if such gain exists immediately before the
"ownership change" and exceeds a statutorily-defined threshold amount) reduced
by recognized built-in gains from prior years ending during such five-year
period. In addition, any "recognized built-in losses" for a taxable year any
portion of which is within the five-year period following the Effective Date
will be subject to limitation in the same manner as if such loss was an existing
NOL to the extent such recognized built-in losses do not exceed the "net
unrealized built-in loss" (if such loss exists immediately before the "ownership
change" and exceeds a statutorily-defined threshold amount) reduced by
recognized built-in losses for prior taxable years ending during such five-year
period. Although the rule applicable to "net unrealized built-in losses"
generally applies to consolidated groups on a consolidated basis, certain
corporations that join the consolidated group within the preceding five years
may not be included in the group computation of "net unrealized built-in loss."
However, such corporations would be taken into account in determining whether
the consolidated group has a "net unrealized built-in gain."
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Thus, a consolidated group could be considered to have both a "net unrealized
built-in loss" and a "net unrealized built-in gain." NOLs (and certain other tax
attributes) not utilized in a given year because of the Section 382 Limitation
remain available for use in future years until their normal expiration dates. To
the extent that the Loss Corporation's Section 382 Limitation in a given year
exceeds its taxable income for such year, that excess will increase the Section
382 Limitation in future taxable years. Finally, if the Loss Corporation does
not continue the Loss Corporation's historic business or use a significant
portion of the Loss Corporation's business assets in a new business for two
years after the Effective Date, the Section 382 Limitation would be zero (except
as increased by recognized built-in gains, as described above). The Reorganized
Debtor Group has no intention to discontinue the conduct of its historic
business after the Effective Date.
Two alternative bankruptcy exceptions for Loss Corporations
undergoing an ownership change pursuant to a bankruptcy proceeding are provided
for in the Tax Code. The first exception, Section 382(1)(5) of the Tax Code,
applies where qualified (so-called "old and cold") creditors of the debtor
receive at least 50% of the vote and value of the stock of the reorganized
debtor in a case under the Bankruptcy Code. Under this exception, a debtor's
pre-change NOLs are not subject to the Section 382 Limitation but are instead
reduced by the amount of any interest deductions allowed during the three
taxable years preceding the taxable year in which the ownership change occurs,
and during the part of the taxable year prior to and including the effective
date of the bankruptcy reorganization, in respect of the debt converted into
stock in the reorganization. Moreover, if this exception applies, any further
ownership change of the debtor within a two-year period will preclude the
debtor's utilization of any pre-change losses at the time of the subsequent
ownership change against future taxable income.
An "old and cold" creditor includes a creditor who has held
the debt of the debtor for at least eighteen months prior to the date of the
filing of the case or who has held "ordinary course indebtedness" at all times
it has been outstanding. However, any debt owned immediately before an ownership
change by a creditor who does not become a direct or indirect 5% shareholder of
the reorganized debtor generally will be treated as always having been owned by
such creditor, except in the case of any creditor whose participation in
formulating the plan of reorganization makes evident to the debtor that such
creditor has not owned the debt for such period.
The second bankruptcy exception, Section 382(1)(6) of the Tax
Code, requires no reduction of pre-ownership change NOLs and provides relief in
the form of a relaxed computation of the Section 382 Limitation. In that regard,
Section 382(1)(6) of the Tax Code provides that the value of the Loss
Corporation's outstanding stock for purposes of computing the Section 382
Limitation will be increased to reflect the cancellation of indebtedness in the
bankruptcy case (but the value of such stock as adjusted may not exceed the
value of the Loss Corporation's gross assets immediately before the ownership
change (subject to certain adjustments)).
The Treasury Regulations that apply the rules of Section 382
of the Tax Code to consolidated groups do not address how the bankruptcy
exceptions of Section 382(1)(5) of the Tax Code and Section 382(1)(6) of the Tax
Code apply to consolidated groups. Accordingly, it is not clear how these
exceptions will apply to the Debtor Group. The Debtor Group currently intends to
take the position, consistent with certain rulings issued by the Service and
other authority, that the rules of Section 382(1)(6) of the Tax Code will apply
on a consolidated group basis as if the Debtor Group were a single entity. If
the requirements of Section 382(1)(5) of the Tax Code are otherwise satisfied
and the Debtor Group does not elect to apply the rules of Section 382(1)(6) of
the Tax Code, the Debtor Group currently intends to similarly apply the rules of
Section 382(1)(5) of the Tax Code on a consolidated group basis as if the Debtor
Group were a single entity.
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Implementation of the Plan will trigger an "ownership change"
of the Debtor Group on the Effective Date. If the exception of Section 382(l)(5)
of the Tax Code is unavailable or if the Debtor Group determines that the
exception in Section 382(l)(6) of the Tax Code is more desirable, the Debtor
Group will elect to apply the provisions of Section 382(l)(6) of the Tax Code.
In such event, the Reorganized Debtor Group's use of pre-ownership change NOLs,
AMT (as defined below) NOLs and certain other tax attributes (if any), to the
extent remaining after the reduction thereof as a result of the cancellation of
indebtedness of Leap and Cricket, will be limited and generally will not exceed
each year the product of the applicable long-term tax-exempt rate and the value
of Reorganized Leap's stock increased to reflect the cancellation of
indebtedness pursuant to the Plan.
ALTERNATIVE MINIMUM TAX
In general, an alternative minimum tax ("AMT") is imposed on a
corporation's alternative minimum taxable income ("AMTI") at a 20% rate to the
extent that such tax exceeds the corporation's regular federal income tax. For
purposes of computing AMTI, certain tax deductions and other beneficial
allowances are modified or eliminated. In addition, even though the Reorganized
Debtor Group might otherwise be able to offset all of its taxable income for
regular tax purposes by available NOL carryforwards, only 90% of its AMTI may be
offset by available AMT NOL carryforwards. Thus, for tax periods after the
Effective Date, the Reorganized Debtor Group may have to pay AMT regardless of
whether it generates a NOL or has sufficient NOL carryforwards to offset regular
taxable income for such periods. In addition, if a corporation undergoes an
"ownership change" within the meaning of Section 382 of the Tax Code (as
discussed above) and is in a net unrealized built-in loss position on the date
of the ownership change, the corporation's aggregate tax basis in its assets
would be reduced for certain AMT purposes to reflect the fair market value of
such assets as of the change date. Any AMT that a corporation pays generally
will be allowed as a nonrefundable credit against its regular federal income tax
liability in future taxable years when the corporation is no longer subject to
the AMT.
CANCELLATION OF INTERCOMPANY CLAIMS
Although not free from doubt, the Debtor Group believes that
it will not recognize a net taxable gain if any Intercompany Claims which are
"obligations of a member" (within the meaning of Treasury Regulations Section
1.1502-13(g)) are extinguished in the implementation of the Plan. The Debtor
Group also believes, although not free from doubt, that many of the Intercompany
Claims are not "obligations of a member." The determination of whether an
Intercompany Claim is an "obligation of a member" will depend upon whether, at
the Effective Time, it is more probable than not that the debtor member would be
called upon to perform under the obligation. If any of the Intercompany Claims
are "obligations of members" extinguished in the implementation of the Plan, any
gain recognized by a member of the Debtor Group as a result of the
extinguishment should be offset by a corresponding loss or deduction of the
member of the Debtor Group with an interest in such Claim.
EXCHANGE OF PROPERTY FOR INDEBTEDNESS
The transfer by Leap or Cricket of property in satisfaction of
indebtedness will be treated as a taxable exchange of such property. With
respect to property transferred in satisfaction of recourse indebtedness or
property transferred in satisfaction of nonrecourse indebtedness if such
property does not secure such nonrecourse indebtedness, the amount of gain or
loss will be equal to the difference between the fair market value of the
property transferred and the transferor's basis in such property. If either Leap
or Cricket transfers property securing nonrecourse indebtedness in satisfaction
of such indebtedness, it will recognize gain or loss equal to the difference
between the outstanding principal amount of the debt satisfied in the transfer
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less its tax basis in the property. The entire amount of such gain or loss would
be treated as gain or loss on the disposition of the property (and not as COI).
MERGER OF CRICKET COMMUNICATIONS HOLDINGS, INC. WITH CRICKET
The merger of CCH with and into Cricket should be treated as a
tax-free reorganization under Section 368(a)(1)(G) of the Tax Code. Neither CCH
nor Cricket should recognize any gain or loss for federal income tax purposes as
a result of the merger.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF LEAP GENERAL UNSECURED CLAIMS
The Holders of Leap General Unsecured Claims will recognize
gain or loss upon the receipt of Cash and other property transferred in complete
satisfaction of such Claims. The amount of the gain or loss will be equal to the
difference between (i) the sum of the Cash and the fair market value of the
property received in exchange therefor, and (ii) the Holder's adjusted tax basis
in the Leap General Unsecured Claims exchanged therefor. Any such gain or loss
generally would be (subject to the market discount rules discussed below)
long-term capital gain or loss if the Leap General Unsecured Claims had been
held for more than one year. The Holder's tax basis in the other property
received in exchange for Leap General Unsecured Claims would be equal to the
fair market value of such other property on the Effective Date, and the holding
period for such other property would begin for a Holder on the day immediately
after the Effective Date.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF OLD VENDOR DEBT
Whether the exchange of Old Vendor Debt for New Senior Notes
and New Leap Common Stock pursuant to the Plan will be a nontaxable
recapitalization under the Tax Code will depend in part upon whether the Old
Vendor Debt and New Senior Notes are considered to be "securities" within the
meaning of the provisions of the Tax Code governing reorganizations. The test as
to whether a debt instrument is a "security" involves an overall evaluation of
the nature of the debt instrument, with the term of the debt instrument usually
regarded as one of the most significant factors. Generally, debt instruments
with a term of five years or less have not qualified as "securities," whereas
debt instruments with a term of ten years or more generally have qualified as
"securities."
Although the treatment of the Old Vendor Debt is not entirely
certain because the stated term of the Old Vendor Debt is less than ten years,
both the Old Vendor Debt and the New Senior Notes should be treated as
"securities" for federal income tax purposes. Accordingly, the exchange of Old
Vendor Debt for New Senior Notes and New Leap Common Stock should constitute a
recapitalization for federal income tax purposes and, as a result, exchanging
Holders should not recognize any loss, but will recognize gain to the extent of
the lesser of the amount of gain realized or the fair market value on the
Effective Date of any New Leap Common Stock (which is other property received in
the recapitalization since it is not a security in the issuer of the Old Vendor
Debt) received in exchange therefor.(6) The Holders of Old Vendor Debt would
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(6) Although unlikely, the Service may view the new Leap Common Stock received
by the Holders of Old Vendor Debt pursuant to the Plan as "securities" for
federal income tax purposes. If the Service took such a position, the
receipt of the New Leap Common Stock would be treated as part of a
recapitalization, and gain, if any, should only be realized by the Holders
of Old Vendor Debt to the extent any consideration received pursuant to the
Plan is attributable to interest that accrued while the Holder held the Old
Vendor Debt, in which event Holders would generally be required to treat
such amounts as payment of interest includible in income in accordance with
the Holder's method of accounting for tax purposes (see "Accrued Interest"
below) and no loss will be recognized upon such exchange. A Holder's
aggregate tax basis in any stock or "securities" received in a
recapitalization pursuant to the Plan will be the same as that of the Old
Vendor Debt exchanged therefore, increased
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also recognize income to the extent the New Senior Notes and the New Leap Common
Stock are attributable to accrued but unpaid interest on the Old Vendor Debt, in
which event Holders would generally be required to treat such amounts as payment
of interest includible in income in accordance with the Holder's method of
accounting for tax purposes (see "Accrued Interest" below). A Holder's adjusted
tax basis in any New Senior Notes received in exchange for Old Vendor Debt will
equal the Holder's tax basis in such Old Vendor Debt, increased by any gain
recognized in respect of such Old Vendor Debt and decreased by the fair market
value of the New Leap Common Stock (other than any portion that is allocable to
accrued interest with respect to the Old Vendor Debt). The Holder's basis in the
New Leap Common Stock will be the fair market value of such Stock. The Holder's
holding period for the New Senior Notes will include the Holder's holding period
for the Old Vendor Debt, and the Holder's holding period for the New Leap Common
Stock will begin on the day immediately following the Effective Date.
If the Old Vendor Debt were determined not to constitute
"securities" for federal income tax purposes, then an exchanging Holder would
recognize gain or loss equal to the difference between (i) the sum of the issue
price of the New Senior Notes and the fair market value of the New Leap Common
Stock received and (ii) the Holders' adjusted tax basis in the Old Vendor Debt
exchanged therefor. Any such gain or loss would generally be long-term capital
gain or loss (subject to the market discount rules discussed below) if the Old
Vendor Debt had been held for more than one year. In this event, a Holder's
initial tax basis in the New Senior Notes and the New Leap Common Stock received
would be equal to their issue price and fair market value, respectively, on the
Effective Date, and the holding period for the New Senior Notes and the New Leap
Common Stock would begin on the day immediately after the Effective Date.
NEW SENIOR NOTES
ORIGINAL ISSUE DISCOUNT
Because the New Senior Notes provide for the payment of
interest in Additional Notes (as defined below), the New Senior Notes will be
issued with original issue discount ("OID"). Consequently, a Holder will be
required to include OID in gross income on an annual basis under a constant
yield accrual method, regardless of its regular method of tax accounting,
possibly in advance of the receipt of Cash attributable to such income.
The amount of OID on a New Senior Note will be equal to the
excess of (i) the sum of the New Senior Note's principal amount due at maturity
plus all scheduled interest payments thereon over (ii) the issue price of the
New Senior Note. The "issue price" of a debt instrument issued in exchange for
another debt instrument depends on whether either debt instrument is "traded on
an established securities market" at any time during the sixty-day period ending
thirty days after the effective date of the exchange of such instruments. If
neither is so traded, the issue price of the debt instrument received will be
equal to its stated principal amount, assuming the debt instrument provides for
"adequate stated interest" (i.e., interest at least at the applicable federal
rate), and will be equal to its "imputed principal amount" if the debt
instrument does not provide for "adequate stated interest." Since the New Senior
Notes will not bear "adequate stated interest," the issue price of the New
Senior Notes would equal the "imputed principal amount" of such New Senior Notes
if neither the Old Vendor Debt nor the New Senior Notes is "traded on an
established securities market." The "imputed principal amount" of the New Senior
Notes would be equal to the sum of the present values of all
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by the amount of gain, if any, recognized upon such exchange and reduced by
the fair market value of any property received other than stock or
"securities." Also in such case, the Holder's holding period for any stock
or "securities" received in a recapitalization pursuant to the Plan will
include the Holder's holding period for the Old Vendor Debt.
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payments due under such New Senior Notes, as long as the "imputed principal
amount" so calculated exceeds the stated redemption price at maturity of such
New Senior Notes. If the debt instrument received is "traded on an established
securities market," then its issue price will be its trading price immediately
following issuance. If the exchanged debt instrument is so traded (but the debt
instrument received in exchange therefor is not), the issue price of the debt
instrument received will generally be equal to the fair market value of the debt
instrument exchanged therefor at the time of the exchange (less the fair market
value of the portion of such debt instrument allocable to any other property
received in addition to the new debt instrument, such as the New Leap Common
Stock in the exchange of Old Vendor Debt for New Senior Notes and New Leap
Common Stock).
In general, the Holder of a New Senior Note must include in
gross income for federal income tax purposes the sum of the daily portions of
OID with respect to such New Senior Note for each day during the taxable year or
portion of a taxable year on which such Holder holds the New Senior Note. The
daily portion is determined by allocating to each day of any accrual period a
Pro Rata portion of an amount equal to the "adjusted issue price" of the New
Senior Note at the beginning of the accrual period multiplied by the yield to
maturity of the Note (taking into account the length of the accrual period). The
"adjusted issue price" of a New Senior Note at the start of any accrual period
is the issue price of the New Senior Note increased by the accrued OID for all
prior accrual periods and reduced by any prior Cash payments made on such New
Senior Note. The tax basis of the New Senior Note in the hands of a Holder will
be increased by the amount of OID, if any, on the New Senior Note that is
included in the Holder's gross income and will be decreased by the amount of any
Cash payments received with respect to the New Senior Note, whether such
payments are denominated as principal or interest.
When Reorganized Cricket is deemed to issue additional New
Senior Notes ("Additional Notes") as interest on such New Senior Notes, the
issuance of the Additional Notes will not be treated as a payment of interest on
the originally issued New Senior Notes and the New Senior Notes will be deemed
to be "reissued" on the date that the Additional Notes are issued solely for
purposes of computing the amount of OID includible in income during the then
remaining term of the New Senior Notes. Under these rules, the New Senior Notes
will be deemed to be reissued at their then adjusted issue price (i.e., their
original issue price plus accrued OID less any previous payments of interest in
Cash). The amount of OID includible in ordinary income over the remaining term
of the New Senior Notes, determined on the basis of a constant yield method
described above, will be equal to the excess of (i) the sum of the principal
amount due at maturity of the New Senior Notes and any Additional Notes issued
in lieu of Cash interest payments, plus all remaining scheduled interest
payments thereon over (ii) the revised adjusted issue price of the New Senior
Notes.
AHYDO RULES
The New Senior Notes will constitute "applicable high yield
discount obligations" ("AHYDOs") if the yield to maturity of such New Senior
Notes equals or exceeds the sum of the "applicable federal rate" in effect on
the Effective Date (the "AFR") plus five percentage points and the New Senior
Notes have "significant" OID. Because payments of interest on the New Senior
Notes will be made with Additional Notes, the New Senior Notes should be
considered to have "significant" OID. Based on the current AFR, the New Senior
Notes would likely be AHYDOs. However, the final determination of whether the
New Senior Notes will constitute AHYDOs will ultimately be made on the Effective
Date.
If the New Senior Notes are AHYDOs, Reorganized Cricket will
not be permitted to deduct OID that accrues with respect to such New Senior
Notes until amounts attributable to such OID are paid in Cash or in property
other than stock or debt of Reorganized Cricket (or persons related to
Reorganized Cricket). In addition, to the extent that the yield to maturity of
the New Senior Notes exceeds the sum of the AFR plus six percentage points,
interest attributable to
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such excess yield (the "Dividend-Equivalent Interest") will not be deductible at
any time by Reorganized Cricket (regardless of whether Reorganized Cricket
actually pays such Dividend-Equivalent Interest in Cash or in other property).
Such Dividend-Equivalent Interest would be treated as a dividend to the extent
it is deemed to have been paid out of Reorganized Cricket's current or
accumulated earnings and profits. Subject to otherwise applicable limitations,
Holders of New Senior Notes that are domestic corporations may be entitled to a
dividends received deduction (generally at a 70% rate) with respect to any
Dividend-Equivalent Interest to the extent that Reorganized Cricket has
sufficient current or accumulated earnings and profits. If the
Dividend-Equivalent Interest exceeds Reorganized Cricket's current and
accumulated earnings and profits, the excess will continue to be subject to tax
as ordinary OID income in accordance with the OID rules described above.
MARKET DISCOUNT
The Tax Code generally requires holders of "market discount
bonds" to treat as ordinary income any gain realized on the disposition of such
bonds (including in certain non-recognition transactions, such as a gift) to the
extent such gain does not exceed accrued market discount. A "market discount
bond" is a debt obligation purchased at a market discount subject to a
statutorily-defined de minimis exception. For this purpose, a purchase at a
market discount includes a purchase at a price less than the stated redemption
price at maturity of the debt instrument (in the case of the Old Vendor Debt,
the stated redemption price at maturity will be equal to the principal amount of
such Old Vendor Debt).
Market discount generally accrues on a straight line basis,
unless a holder elects to use a constant interest rate method. A holder of a
debt instrument acquired at a market discount may elect to include the market
discount in income as the discount accrues on a current basis, in which case the
rule with respect to the recognition of ordinary income on a sale or other
disposition of such bond described in the previous paragraph would not apply.
Assuming the exchange of Old Vendor Debt for New Senior Notes
and New Leap Common Stock described above is treated as a non-recognition
transaction, a Holder whose Old Vendor Debt has accrued market discount thereon
should be required to recognize the accrued market discount as ordinary income
when the Holder exchanges such Debt for New Senior Notes and New Leap Common
Stock only to the extent of the total gain recognized by the Holder (although
this conclusion may depend on the issuance of as-yet unissued implementation
regulations). Any remaining accrued market discount should be allocated to the
New Senior Notes received in the exchange, although no regulations or rules have
been provided on this subject. If the New Senior Notes received in the exchange
are themselves treated as market discount bonds, the portion of the accrued
market discount allocable to the New Senior Notes will be treated as accrued
market discount on those instruments. The portion of the accrued market discount
allocated to New Senior Notes that are not market discount bonds will be treated
as ordinary income upon disposition of such New Senior Notes, but not in excess
of the total gain recognized upon such disposition. Holders who hold Old Vendor
Debt with accrued market discount may have been required to defer the deduction
of a portion of the interest on any indebtedness incurred or maintained to
purchase or carry their Old Vendor Debt. Holders who deferred their interest
expense should be permitted to claim their deferred deductions to the extent
they recognize gain on the disposition of such Debt in the exchange of Old
Vendor Debt for New Senior Notes and New Leap Common Stock. The balance of such
deferred deductions generally will be deductible on a taxable disposition of the
New Senior Notes received in the exchange.
If the exchange of Old Vendor Debt for New Senior Notes does
not constitute a recapitalization, any gain recognized by a Holder with respect
to the exchange of Old Vendor Debt with market discount for New Senior Notes and
New Leap Common Stock will generally be treated as ordinary income to the extent
of the market discount accrued during the Holder's
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period of ownership. This rule will not apply to a Holder who had previously
elected to include market discount in income as it accrued for federal income
tax purposes.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital
asset exceeds the amount payable at maturity of the obligation, such excess will
constitute amortizable bond premium that the Holder may elect to amortize under
the constant interest rate method over the period from its acquisition date to
the obligation's maturity date. Amortizable bond premium generally is treated as
an offset to interest income on the related debt instrument. A Holder who elects
to amortize bond premium must generally reduce its tax basis in the related
obligation by the amount of amortizable bond premium used to offset interest
income. If a debt instrument purchased at a premium is redeemed in full prior to
its maturity, a Holder who has elected to amortize bond premium should generally
be entitled to a deduction for any remaining unamortized bond premium in the
taxable year of redemption.
NEW LEAP COMMON STOCK
DIVIDENDS
A Holder generally will be required to include in gross income
as ordinary dividend income the amount of any distributions paid on the New Leap
Common Stock to the extent that such distributions are paid out of Reorganized
Leap's current or accumulated earnings and profits as determined for federal
income tax purposes. Distributions in excess of such earnings and profits will
reduce the Holder's tax basis in its New Leap Common Stock and, to the extent
such excess distributions exceed such tax basis, will be treated as gain from a
sale or exchange of such New Leap Common Stock. Holders that are treated as
corporations for federal income tax purposes may be entitled to a dividends
received deduction (generally at a 70% rate) with respect to distributions out
of earnings and profits and are urged to consult their tax advisor regarding the
rules relating to the dividends received deduction.
SALE OR OTHER TAXABLE DISPOSITION
Upon the sale or other taxable disposition of New Leap Common
Stock, a Holder generally will recognize capital gain or loss equal to the
difference between the amount of Cash and fair market value of any property
received and such Holder's adjusted tax basis in such New Leap Common Stock
(determined as described above). Capital gain or loss recognized upon the
disposition of the New Leap Common Stock will be long-term if, at the time of
the disposition, the holding period for the New Leap Common Stock exceeds one
year. Holders should consult their tax advisors with respect to applicable tax
rates and netting rules for capital gains and losses. Certain limitations exist
on the deduction of capital losses by both corporate and noncorporate taxpayers.
ACCRUED INTEREST
A Holder will be treated as receiving a payment of interest
(includible in income in accordance with the Holder's method of accounting for
federal income tax purposes) to the extent that any property received pursuant
to the Plan is attributable to accrued but unpaid interest, if any, with respect
to the Holder's Leap General Unsecured Claims or Old Vendor Debt, as the case
may be. The extent to which the receipt of Cash or other property should be
attributable to accrued but unpaid interest is unclear. The Reorganized Debtor
Group intends to take the position that such Cash or property distributed
pursuant to the Plan will first be allocable to the principal amount of a
Holder's Leap General Unsecured Claims or Old Vendor Debt, as the case may be,
and then, to the extent necessary, to any accrued but unpaid interest thereon.
It is possible, however, that the Service may take a contrary position.
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To the extent any property received pursuant to the Plan is
considered attributable to accrued but unpaid interest, a Holder will recognize
ordinary income to the extent the value of such property exceeds the amount of
interest previously taken into income by the Holder, and a Holder's basis in
such property should be equal to the amount of interest income treated as
satisfied by the receipt of such property. The holding period in such property
should begin on the day immediately after the Effective Date. A Holder generally
will be entitled to recognize a loss to the extent any accrued interest was
previously included in its gross income and is not paid in full. EACH HOLDER
SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE DETERMINATION OF THE AMOUNT OF
CONSIDERATION RECEIVED UNDER THE PLAN THAT IS ATTRIBUTABLE TO INTEREST (IF ANY).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Holders may be subject to backup withholding at the applicable
tax rate with respect to the receipt of consideration received pursuant to the
Plan, unless such Holder (1) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (2) provides a
correct taxpayer identification number ("TIN") on IRS Form W-9 (or a suitable
substitute form), certifies as to no loss of exemption from backup withholding
and complies with applicable requirements of the backup withholding rules. An
otherwise exempt Holder may be subject to backup withholding if, among other
things, the Holder (i) fails to properly report payments of interest and
dividends or (ii) in certain circumstances, has failed to certify, under penalty
of perjury, that such Holder has furnished a correct TIN. Holders that do not
provide a correct TIN may also be subject to penalties imposed by the Service.
Backup withholding is not an additional tax. Rather, the
federal income tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of federal income taxes, a Holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the Service.
The Reorganized Debtor Group (or its paying agent) may be
obligated to provide information statements to the Service and to Holders who
receive consideration pursuant to the Plan reporting such payments (except with
respect to Holders that are exempt from the information reporting rules, such as
corporations).
The backup withholding and information reporting rules
described above may also apply with respect to payments (and deemed payments)
made after the Effective Date with respect to the New Leap Common Stock.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS IS FOR
GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF
THE PLAN DESCRIBED HEREIN AND THE APPLICATION OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS. NEITHER THE PROPONENTS NOR THEIR PROFESSIONALS SHALL HAVE ANY
LIABILITY TO ANY PERSON OR HOLDER ARISING FROM OR RELATED TO THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN OR THE FOREGOING DISCUSSION.
SECTION XIII.
LIMITATION OF LIABILITY
Neither (a) any Debtor or Reorganized Debtor or any of their
respective postpetition employees, officers, directors, agents, representatives,
affiliates, attorneys, financial
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advisors or any other professional persons employed by any of them, nor (b) the
Informal Vendor Debt Committee and the Informal Noteholder Committee, or any of
their respective members, agents, employees, directors, officers,
representatives, attorneys or other professional advisors, (c) the Official
Committee, or any of their respective postpetition members, agents, employees,
directors, officers, representatives, attorneys or other professional advisors,
nor (d) the Old Indenture Trustee, or any of its agents, employees, directors,
officers, representatives, attorneys or other professional advisors, in each
case, shall have any responsibility, or have or incur any liability, to any
Person whatsoever, under any theory of liability (except for any claim based
upon willful misconduct or gross negligence), for any act taken or omission made
in good faith directly related to formulating, implementing, confirming, or
consummating the Plan, the Disclosure Statement, or any contract, instrument,
release, or other agreement or document created in connection with the Plan,
provided that nothing in this paragraph shall limit the liability of any Person
for breach of any express obligation it has under the terms of this Plan or
under any post-petition agreement or other post-petition document entered into
by such Person or in accordance with the terms of this Plan or for any breach of
a duty of care owed to any other Person occurring after the Effective Date.
DATED: July __, 2003 LEAP WIRELESS INTERNATIONAL,
INC.
By: _________________________
Title:
DATED: July __, 2003 CRICKET COMMUNICATIONS
HOLDINGS, INC.
By: _________________________
Title:
DATED: July __, 2003 CRICKET COMMUNICATIONS, INC.
By: _________________________
Title:
DATED: July __, 2003 FOR EACH OF THE LICENSE
HOLDING COMPANIES
By: _________________________
Title:
DATED: July __, 2003 FOR EACH OF THE PROPERTY
HOLDING COMPANIES
By: _________________________
Title:
DATED: July __, 2003 FOR EACH OF THE OTHER
SUBSIDIARIES
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By: _________________________
Title:
LATHAM & WATKINS LLP
Michael S. Lurey
Robert A. Klyman
Eric D. Brown
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
By: _________________________
Robert A. Klyman
Counsel for the Debtors
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DECLARATION OF SERVICE
LEAP WIRELESS INTERNATIONAL, INC., CRICKET COMMUNICATIONS, INC., ET AL.
CASE NO. 03-3470-ALL THROUGH 033535-ALL
I am a resident of the State of California, over the age of eighteen
years, and not a party to the within action. My business address is Latham &
Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California 90071-2007.
On July __, 2003, I served the foregoing document entitled DISCLOSURE
STATEMENT ACCOMPANYING THIRD AMENDED JOINT PLAN OF REORGANIZATION, AS MODIFIED,
DATED AS OF JULY 17, 2003 on the interested parties as stated on the attached
Service List.
[X] I placed a sealed envelope or package containing the
document(s) in a post office, mailbox, sub-post office,
substation, mail chute, or other like facility regularly
maintained by the United States Postal Service for receipt of
U.S. Mail, with U.S. Mail postage paid.
I declare that I am employed in the office of a member of the Bar of or
permitted to practice before this Court at whose direction the service was made.
Executed on July __, 2003, at Los Angeles, California.
/s/
-------------------------------------
JOAN ROBLES
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Exhibit F
I. SIGNIFICANT UNCERTAINTIES
In addition to the General Assumptions and the Notes to the Liquidation Analysis
that are set forth below, there are significant areas of uncertainty that exist
with respect to this Liquidation Analysis.
1) The Liquidation Analysis assumes that the liquidation of the Debtors would
commence and would be substantially complete within a twelve-month period.
The wind-down costs during the liquidation period have been estimated by
the Debtors' management and any deviation from this assumed period could
have a material impact on the wind-down costs, the amount of administrative
claims, proceeds from asset sales, and the ultimate recovery to the
creditors of the Debtors' Estates.
2) In any liquidation there is a general risk of unanticipated events, which
could have a significant impact on the projected cash receipts and
disbursements. These events include changes in the general economic
condition, changes in consumer preferences, obsolescence, new developments
in the wireless telecommunications industry, changes in the market value of
the Debtors' assets and problems with current and former employees.
In addition to the specific assumptions described in the footnotes to the table
below, the following general assumptions were used in formulating the
Liquidation Analysis.
II. GENERAL ASSUMPTIONS
1) This Liquidation Analysis was prepared in accordance with section
1129(a)(7)(A)(ii) of the Bankruptcy Code to determine whether the Joint
Plan of Reorganization is in the best interest of each holder of a claim or
interest.
2) The Liquidation Analysis at Cricket Communications, Inc. includes the
liquidation of the assets of Cricket Communications, Inc., its subsidiaries
and certain license holding companies which have been pledged as collateral
to the holders of senior secured vendor debt. The Liquidation Analysis at
Leap Wireless International, Inc. includes the assets at Leap Wireless
International, Inc. and its subsidiaries, other than those previously
discussed which are part of the collateral pool for the senior secured
vendor debt.
3) The Liquidation Analysis is based upon a number of estimates and
assumptions that, although developed and considered reasonable by
management, are inherently subject to significant economic, business,
governmental regulation and competitive uncertainties and contingencies
beyond the control of the Debtors or their management. The Liquidation
Analysis is also based on assumptions with regard to liquidation decisions
that are subject to change. Accordingly, there can be no assurance that the
values reflected in this Liquidation Analysis would be realized if the
Debtors were, in fact, to undergo such a liquidation and actual results
could vary materially and adversely from those contained herein.
4) The Liquidation Analysis assumes the liquidation of the operating
subsidiaries with proceeds used first to repay the subsidiaries'
liabilities with any surplus being applied against the obligations of the
parent company. It is assumed that all operating assets would be disposed
of through sale, liquidation and/or termination as appropriate.
5) The Liquidation Analysis uses information from Debtors' consolidated
unaudited financial statements as of March 31, 2003 (except for items
specifically noted), and other figures estimated by the Debtors'
management.
6) Nature and Timing of the Liquidation Process--Under section 704 of the
Bankruptcy Code, a Chapter 7 trustee must, among other duties, collect and
convert the property of the Debtors' estate to cash and close the estate as
expeditiously as is compatible with the best interests of the parties in
interest. Solely for purposes of preparing this Liquidation Analysis, it is
assumed that the Debtors would voluntarily convert the pending Chapter 11
case to a Chapter 7 liquidation. The Debtors' assets would be sold during a
twelve-month period. Management believes that the actual sale periods for
some of the assets could be shorter than those assumed, and there can be no
assurance that the actual sale period for other assets would not be longer
than assumed.
7) Estimated Liquidation Proceeds--All telecommunications equipment and
wireless spectrum are assumed to be sold in a straight liquidation to the
highest bidder. The following list identifies factors considered by the
Debtors in estimating the proceeds that might be received from the
liquidation sales.
- The historical cost of the assets,
- Asset location and market demand,
- Recently transacted telecommunications equipment and wireless
spectrum sales,
- Management's expertise in asset resale values, based on its
experience buying and selling wireless spectrum and used telecommunications
network equipment in the resale markets,
- Analysis of liabilities and obligations relating to particular
assets,
- Current industry trends including general availability of used
telecommunications equipment and wireless spectrum,
- The number of companies in the industry selling new and used
telecommunications equipment, and
- The current technology being used in telecommunications equipment
build outs.
8) This Liquidation Analysis was prepared assuming a distressed sale scenario
(under which all license sales were completed within a 12 month period) and
assuming all parties are informed of the relevant facts. Given the
valuation uncertainty within the telecommunications industry that currently
exists, particularly for wireless spectrum, management has made its best
estimates of the high and low values realizable by the Debtors for their
assets in a liquidation process.
9) Certain Tax Matters--Management believes that it is unlikely that any
taxable gains would be triggered through a liquidation of the Debtors'
assets. However, if for some reason there were to be a taxable gain from
the liquidation of the Debtors' assets, management believes any realized
gains would be reduced to zero by the Debtors' net operating loss
carryforward.
10) Additional Liabilities and Reserves--The Debtors believe that in addition
to the expenses that would be incurred in a Chapter 11 reorganization,
there would be certain actual and contingent liabilities and expenses for
which provision would be required in a Chapter 7 liquidation before
distributions could be made to priority or general unsecured creditors,
including: (a) Administrative Claims including damages from rejected post
petition contracts, the fees of a trustee and of counsel and other
professionals (including financial advisors and accountants), retention
bonuses paid to employees required to effectuate the wind down process and
other liabilities (including retirement, vacation pay, and other
employee-related administrative costs and liabilities) that would be funded
from continuing operations if the Debtors were
reorganized as a going concern; and (b) certain administrative costs.
Management believes that there is significant uncertainty as to the
reliability of the Debtors' estimates of the amounts related to the
foregoing that have been assumed in this Liquidation Analysis. In addition,
it is possible that the FCC may require the Debtors to take steps to ensure
a smooth transition of their wireless customers to a new service provider
as a condition to approving the sale/transfer of their spectrum licenses to
a third party buyer. This requirement may add substantial incremental wind
down costs beyond the subscriber transition costs estimated herein.
11) Distributions--Under a Chapter 7 liquidation, all secured claims are
required to be satisfied from the proceeds of the collateral securing such
claims before any such proceeds would be distributed to any other
creditors. The remaining proceeds of the Debtors, to the extent proceeds
remain after satisfaction of all secured claims, would be allocated in the
following priority: the proceeds would first be distributed to the Holders
of Administrative Claims, then to Priority Unsecured Claims and finally to
the Unsecured Claims.
12) Intercompany Claims--The amounts included in the Liquidation Analysis do
not include any charges against or recovery by any Debtors on account of
intercompany claims. The Debtors believe that the recovery, if any, on
account of intercompany claims in a Chapter 7 liquidation would not be
material.
13) Conclusion--The Debtors believe that a Chapter 7 liquidation of the Debtors
would result in a meaningful diminution in the value to be realized by the
aggregate claimants against the Debtors. Consequently, the Debtors believe
that the Joint Plan of Reorganization will provide a greater aggregate
return to the creditors than would a Chapter 7 liquidation.
NOTES TO LIQUIDATION ANALYSIS:
NOTE A: Cash & Cash Equivalents are estimated as of the Petition Date and are
assumed recoverable at 100% in both high and low liquidation scenarios for
Cricket Communications, Inc. and Leap Wireless International, Inc.
NOTE B: Restricted Cash & Cash Equivalents at Cricket Communications, Inc. on
the Petition Date consist of cash pledged to credit card processors to ensure
performance on prepaid services. In a liquidation scenario, the credit card
processors will have claims against Cricket Communications, Inc. that they are
likely to deduct from the deposits. As a result, these assets are valued at 30%
to 70% of book value. Restricted Cash & Cash Equivalents at Leap Wireless
International, Inc. on the Petition Date consist of cash and cash deposits and
excludes $14.1 million paid to senior noteholders in May 2003 in accordance with
a court order. Recovery percentages ranged from 0% to 100%, which rendered an
overall recovery range of 29% to 33%.
NOTE C: Accounts Receivable at Cricket Communications, Inc. includes receivables
from other wireless telecommunications carriers, large indirect dealers, local
exchange carriers and various other parties. For purposes of this analysis,
Accounts Receivables were divided into sub-categories based on receivable type
and specific high and low recovery values were applied to each category.
Individual recovery percentages ranged from 0% to 90% of outstanding balances,
which rendered an overall recovery range for all receivables of 53% to 70%. This
range reflects the fact that the recovery on receivables is likely to be reduced
by offsetting claims by the creditors for services owed to or provided by the
creditors.
NOTE D: Inventories at Cricket Communications, Inc. consist mainly of recently
purchased wireless handsets that management believes could be resold for
meaningful value. Inventories were valued from 60% to 80% of book value.
NOTE E: Other Current Assets include prepaid insurance, prepaid rent, prepaid
expenses and prepaid IT and were assumed to carry no value.
NOTE F: Property, Plant & Equipment (PP&E) assets were divided into a number of
different classes, and high and low recovery values were applied to each class.
Individual recovery percentages ranged from 0% to 35% of gross book value and
were based on management's estimate of realizable value for each class of asset.
Capitalized labor and software costs, which represent approximately 38% of total
PP&E, were assumed to have no value. The overall recovery of PP&E ranged from 3%
to 10% at Cricket Communications, Inc. and 8% to 17% at Leap Wireless
International, Inc. The net book value of PP&E at March 31, 2003, after
subtraction of accumulated depreciation, was $1,010.1 million for Cricket and
$4.6 million for Leap, respectively.
NOTE G: Net book values of the wireless licenses are as of April 30, 2003 and
are shown net of accumulated amortization. Wireless licenses were valued on a
license-by-license basis based on a discount to implied FCC Auction 35 pricing
for similar sized markets. FCC Auction 35, completed in January 2001, was the
last major FCC auction of PCS spectrum and a widely accepted benchmark for
spectrum values. Individual recovery percentages by market ranged from 17% to
22% of implied Auction 35 pricing. The estimated liquidation amounts included
for wireless licenses that are pledged to secure FCC debt or the NTCH Note were
reduced by the amount of the respective debt obligations as of the Petition
Date, as these amounts would have to be repaid upon liquidation of this
collateral. If the estimated liquidation value was less than the remaining debt
obligations for a wireless license, a liquidation value of zero was ascribed to
such license. The asset realization upon liquidation, net of debt obligations,
ranged from 36% to 47% at Cricket Communications, Inc. and 87% to 112% at Leap
Wireless International, Inc.
NOTE H: Other Long Term Assets include life insurance, deposits used to secure
operating contracts, long-term investments in marketable securities and deferred
tax assets. Recovery percentages for life insurance, deposits, long-term
investments and deferred tax assets ranged from 0% to 100%. The overall recovery
of Other Long Term Assets at Cricket Communications, Inc. was estimated at 20%
for high and low recovery values. The recovery at Leap Wireless International,
Inc. ranged from 8% to 10%.
NOTE I: Wind-Down Operating Costs at Cricket Communications, Inc. assume a
3-month period to transition customers off the Cricket system, followed by 5
months to decommission the cell sites and switches. Wind-Down Operating Costs at
Cricket Communications, Inc. and Leap Wireless International, Inc. also include
corporate costs required to complete a wind down.
NOTE J: Subscriber Transition Costs at Cricket Communications, Inc. reflect
administrative and transfer costs that management estimates would be incurred by
a third party to transition existing Cricket subscribers to its network and back
office systems. Management estimates that these transfer costs would range from
$0 to $30 per subscriber. It is possible that the FCC may require the Debtors to
take steps to ensure a smooth transition of Cricket's wireless customers to a
new service provider as a condition to approving the sale/transfer of the
Debtors' spectrum licenses to a third party buyer. This requirement may add
substantial incremental wind down costs beyond the subscriber transition costs
estimated herein.
NOTE K: The costs of Chapter 7 liquidation are assumed to come out of the
proceeds from the sale of unencumbered assets or secured creditor collateral.
NOTE L: Chapter 7 Trustee fees are estimated at 3.0% of the gross liquidated
proceeds.
NOTE M: Professional Fees for legal expenses were estimated at $1.5 to $2.5
million at Cricket Communications, Inc. and $0.5 to $1.5 million at Leap
Wireless International, Inc.
NOTE N: Liquidation Costs are estimated as 5.0% of the total realization for
PP&E and wireless licenses. These charges are the selling costs associated with
liquidating the fixed assets and wireless licenses of the Debtors through
auction or other means (e.g. commissions).
NOTE O: Secured Claims at Cricket Communications, Inc. consist of the estimated
balances of the vendor debt on the Petition Date. The vendor debt obligation is
only secured to the extent of the estimated value of the assets securing the
obligation. The balance of the obligation is considered an unsecured claim.
NOTE P: In the event that the estimated recovery value of a specific asset (e.g.
spectrum licenses) pledged as collateral is less than its respective debt
obligation, the undercollateralized portion of that obligation is shown as an
unsecured claim. For purposes of presentation, the unsecured claim balances
shown under the "Estimated Balance" column reflects the average unsecured
portion of a secured claim. The corresponding high and low recovery values,
however, are calculated based on the actual high and low unsecured portions of
the secured claims. The table below shows the estimated high, low and average
unsecured portion of secured claims:
($ in millions)
UNSECURED CLAIM LOW SCENARIO HIGH SCENARIO AVERAGE
- ---------------------------------------------------------------------------------------
Vendor Debt $1,325.6 $1,092.1 $1,208.8
FCC Debt 30.8 19.2 25.0
- ---------------------------------------------------------------------------------------
NOTE Q: Unsecured Claims at Cricket Communications, Inc. in the amount of $66.5
million consist of all pre-petition accounts payable and accrued liabilities.
NOTE R: Investments in Subsidiaries at Leap Wireless International, Inc. are
assumed to carry no value.
NOTE S: ENDESA has alleged breaches of representations and warranties under the
purchase agreement in regards to the sale of Smartcom and offset related claims
against a $35.0 million (face value) promissory note.
NOTE T: 12.5% Senior Notes on the Petition Date are secured by up to $0.2
million of restricted cash held in a pledged account. The balance of the
obligation is shown as an unsecured claim.
NOTE U: Chapter 11 Administrative Claims at Leap Wireless International, Inc.
consist of accrued salaries, wages, and other compensation and restructuring
fees (financial and legal advisory) and exclude priority claims under Section
507 (except those under Section 507(a)(1)).
NOTE V: This amount is an estimate only and will be revised after the Debtors
file their schedules and statements of financial affairs.
NOTE W: This analysis does not include unsecured deficiency claims against Leap
Wireless International, Inc. held by holders of Cricket vendor debt that could
be asserted under Section 1111(b) of the Bankruptcy Code, as such claims would
not be available in a Chapter 7 liquidation.
NOTE X: Unsecured Claims at Leap Wireless International, Inc. in the amount of
$6.0 million consist of all pre-petition accounts payable and accrued
liabilities.
NOTE Y: Balance as of the Petition Date.
CHAPTER 7 LIQUIDATION ANALYSIS
CRICKET COMMUNICATIONS, INC.
(US$ in millions)
- --------------------------------------------------------------------------------------------------------------------
ASSET REALIZATION LIQUIDATION RECOVERIES
NOTES ----------------- ----------------------
STATEMENT OF ASSETS REF. BOOK VALUE LOW HIGH LOW HIGH
- ------------------- ----- ---------- ----- ----- ------ ------
Cash and Cash Equivalents A $118.0 100.0% 100.0% $118.0 $118.0
Restricted Cash and Cash Equivalents B 10.3 30.0% 70.0% 3.1 7.2
Accounts Receivable C 9.3 53.3% 70.0% 5.0 6.5
Inventories D 19.3 60.0% 80.0% 11.6 15.4
Other Current Assets E 16.0 0.0% 0.0% 0.0 0.0
Property, Plant & Equipment, Gross F 1,477.9 3.4% 9.7% 49.8 142.7
Wireless Licenses, Net G 723.6 35.7% 46.6% 258.2 336.9
Other Long-Term Assets H 8.2 20.1% 20.1% 1.7 1.7
------- ----- ----- ------ ------
TOTAL LIQUIDATED PROCEEDS AVAILABLE TO PAY CHAPTER 7 ADMINISTRATIVE CLAIMS, GROSS $447.3 $628.4
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
LIQUIDATION RECOVERIES
----------------------
WIND-DOWN AND TRANSITION COSTS LOW HIGH
- ------------------------------ ------ ------
Wind-Down Operating Costs I 85.0 65.0
Subscriber Transition Costs J 45.4 0.0
------ ------
TOTAL WIND-DOWN AND TRANSITION COSTS $130.4 $ 65.0
------ ------
TOTAL LIQUIDATED PROCEEDS AVAILABLE TO PAY CHAPTER 7 ADMINISTRATIVE CLAIMS, NET $316.9 $563.4
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
LIQUIDATION RECOVERIES
----------------------
CHAPTER 7 ADMINISTRATIVE CLAIMS K LOW HIGH
- ------------------------------- ------ ------
Trustee Fees L $ 13.4 $ 18.9
Professional Fees M 2.5 1.5
Liquidation Costs N 15.4 24.0
------ ------
TOTAL CHAPTER 7 ADMINISTRATIVE CLAIMS $ 31.3 $ 44.3
Net Estimated Recovery - Chapter 7 Admin Claims 100.0% 100.0%
NET ESTIMATED PROCEEDS AVAILABLE FOR DISTRIBUTION AFTER CHAPTER 7 ADMINISTRATIVE CLAIMS $285.5 $519.1
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ----------- ---------- ----------------------
SECURED CLAIMS BALANCE LOW HIGH LOW HIGH
- -------------- ---------- ------ ------ ------ -----
Vendor Debt including Accrued Interest O $ 1,611.1 17.7% 32.2% 285.5 519.1
---------- ------ ------
TOTAL SECURED CLAIMS $ 1,611.1 285.5 519.1
NET ESTIMATED PROCEEDS AVAILABLE FOR DISTRIBUTION AFTER SECURED CLAIMS $ 0.0 $ 0.0
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
----------- ---------- ----------------------
CHAPTER 11 ADMINISTRATIVE AND OTHER PRIORITY CLAIMS LOW HIGH LOW HIGH
- --------------------------------------------------- ----- ----- ------ ------
Chapter 11 Administrative and Other Priority Claims N/A N/A $ 0.0 $ 0.0
----- ----- ------ ------
TOTAL CH. 11 ADMINISTRATIVE AND OTHER PRIORITY CLAIMS N/A N/A $ 0.0 $ 0.0
BALANCE AVAILABLE FOR DISTRIBUTION TO UNSECURED CLAIMS $ 0.0 $ 0.0
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ----------- ---------- ----------------------
UNSECURED CLAIMS BALANCE LOW HIGH LOW HIGH
- ---------------- ---------- ------ -------- ------ ------
Vendor Debt including Accrued Interest O, P $ 1,208.8 0.0% 0.0% $ 0.0 $ 0.0
FCC Debt Including Accrued Interest P 25.0 0.0% 0.0% 0.0 0.0
Trade Payables Q 66.5 0.0% 0.0% 0.0 0.0
---------- --- --- ------ ------
TOTAL UNSECURED CLAIMS $ 1,300.4 0.0% 0.0% $ 0.0 $ 0.0
BALANCE AVAILABLE FOR DISTRIBUTION TO EQUITY INTERESTS $ 0.0 $ 0.0
- --------------------------------------------------------------------------------------------------------------------
CHAPTER 7 LIQUIDATION ANALYSIS
LEAP WIRELESS INTERNATIONAL, INC.
(US$ in millions)
- ----------------------------------------------------------------------------------------------------------------
ASSET REALIZATION LIQUIDATION RECOVERIES
NOTES ------------------ ----------------------
STATEMENT OF ASSETS REF. BOOK VALUE LOW HIGH LOW HIGH
- ------------------- ----- ---------- ----- ----- ----- ------
Cash and Cash Equivalents A $ 84.2 100.0% 100.0% $84.2 $ 84.2
Restricted Cash and Cash Equivalents B 2.5 29.2% 33.3% 0.7 0.8
Other Current Assets E 4.0 0.0% 0.0% 0.0 0.0
Property, Plant & Equipment, Gross F 9.3 8.0% 17.2% 0.7 1.6
Investments in Subsidiaries R 763.3 0.0% 0.0% 0.0 0.0
Wireless Licenses, Net G 5.5 86.5% 111.9% 4.8 6.2
ENDESA Note Receivable S 35.0 0.0% 30.0% 0.0 10.5
Other Long-Term Assets H 31.5 8.4% 9.8% 2.7 3.1
------- ----- ----- ----- ------
TOTAL LIQUIDATED PROCEEDS AVAILABLE TO PAY CHAPTER 7 ADMINISTRATIVE CLAIMS, GROSS $93.1 $106.4
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
LIQUIDATION RECOVERIES
----------------------
WIND-DOWN AND TRANSITION COSTS LOW HIGH
- ------------------------------ ----- ------
Wind-Down Operating Costs I 2.0 1.0
----- ------
TOTAL WIND-DOWN AND TRANSITION COSTS 2.0 1.0
TOTAL LIQUIDATED PROCEEDS AVAILABLE TO PAY CHAPTER 7 ADMINISTRATIVE CLAIMS, NET $91.1 $105.4
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
LIQUIDATION RECOVERIES
----------------------
CHAPTER 7 ADMINISTRATIVE CLAIMS K LOW HIGH
- ------------------------------- ------ ------
Trustee Fees L $ 2.8 $ 3.2
Professional Fees M 1.5 0.5
Liquidation Costs N 0.3 0.4
------ ------
TOTAL CHAPTER 7 ADMINISTRATIVE CLAIMS $ 4.6 $ 4.1
Net Estimated Recovery - Chapter 7 Admin Claims 100.0% 100.0%
NET ESTIMATED PROCEEDS AVAILABLE FOR DISTRIBUTION AFTER CHAPTER 7 ADMINISTRATIVE CLAIMS $ 86.5 $101.3
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ---------------------- ----------------------
SECURED CLAIMS BALANCE LOW HIGH LOW HIGH
- -------------- --------- ----- ----- ----- ------
12.5% Senior Notes T $225.0 0.1% 0.1% 0.2 0.2
------ ----- ------
TOTAL SECURED CLAIMS $225.0 0.2 0.2
NET ESTIMATED PROCEEDS AVAILABLE FOR DISTRIBUTION AFTER SECURED CLAIMS $86.3 $101.1
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ---------------------- ----------------------
CHAPTER 11 ADMINISTRATIVE CLAIMS BALANCE LOW HIGH LOW HIGH
- -------------------------------- --------- ----- ----- ----- ------
Post-Petition Taxes, Accrued Salaries,
Accrued Bonuses U $ 6.0 100.0% 100.0% $ 6.0 $ 6.0
Restructuring Professionals U 3.0 100.0% 100.0% 3.0 3.0
------ ----- ----- ----- -----
TOTAL CHAPTER 11 ADMINISTRATIVE CLAIMS $ 9.0 100.0% 100.0% $ 9.0 $ 9.0
BALANCE AVAILABLE FOR DISTRIBUTION TO PRIORITY CLAIMS $77.3 $92.1
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ---------------------- ----------------------
OTHER PRIORITY CHAPTER 11 UNSECURED CLAIMS BALANCE LOW HIGH LOW HIGH
- ------------------------------------------ --------- ----- ----- ----- ------
Pre-Petition Section 507 Claims V $ 1.5 100.0% 100.0% $ 1.5 $ 1.5
------ ----- ----- ----- -----
TOTAL OTHER PRIORITY CHAPTER 11 UNSECURED CLAIMS $ 1.5 100.0% 100.0% $ 1.5 $ 1.5
BALANCE AVAILABLE FOR DISTRIBUTION TO UNSECURED CLAIMS $75.8 $90.6
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ---------------------- ----------------------
UNSECURED CLAIMS W BALANCE LOW HIGH LOW HIGH
- ---------------- --------- ----- ----- ----- ------
Trade Payables X $ 6.0 10.3% 12.3% $ 0.6 $ 0.7
NTCH Note Payable Including
Accrued Interest 2.9 10.3% 12.3% 0.3 0.4
12.5% Senior Notes T 224.8 10.3% 12.3% 23.1 27.6
14.5% Senior Discount Notes Y 504.5 10.3% 12.3% 51.8 61.9
------- ----- ----- ----- -----
TOTAL UNSECURED CLAIMS $738.2 10.3% 12.3% $75.8 $90.6
BALANCE AVAILABLE FOR DISTRIBUTION TO EQUITY INTERESTS $ 0.0 $ 0.0
- ----------------------------------------------------------------------------------------------------------------
EXHIBIT G
FINANCIAL PROJECTIONS
The Debtors' management has developed the Debtors' business plan and
prepared certain projections of the Debtors' results of operations, cash flows
and certain other items for the quarter ending December 31, 2003 through
December 31, 2004 and the fiscal years 2004 through 2010 (together, the
"Projection Period"). Such projections (the "Projections") are based upon
various assumptions, including those described below, and have been adjusted to
reflect the confirmation and consummation of the Joint Plan of Reorganization.
THE DEBTORS DO NOT, AS A MATTER OF COURSE, PUBLISH THEIR BUSINESS
PLANS, BUDGETS OR STRATEGIES OR MAKE EXTERNAL PROJECTIONS OR FORECASTS OF THEIR
ANTICIPATED FINANCIAL POSITIONS OR RESULTS OF OPERATIONS. ACCORDINGLY, THE
DEBTORS DO NOT ANTICIPATE THAT THEY WILL, AND DISCLAIM ANY OBLIGATION TO,
FURNISH UPDATED BUSINESS PLANS, BUDGETS OR PROJECTIONS TO STAKEHOLDERS PRIOR TO
THE EFFECTIVE DATE OF THE JOINT PLAN OF REORGANIZATION OR TO INCLUDE SUCH
INFORMATION IN DOCUMENTS REQUIRED TO BE FILED WITH THE SEC OR OTHERWISE MAKE
SUCH INFORMATION PUBLICLY AVAILABLE.
The following Projections were not prepared with a view toward
compliance with published guidelines of the SEC or the American Institute of
Certified Public Accountants regarding forecasts. The independent auditors of
the Debtors have not audited, reviewed, compiled or otherwise applied procedures
to the Projections and consequently, do not express an opinion or any other form
of assurance with respect to the Projections. The forecast data was not prepared
on a basis consistent with generally accepted accounting principles ("GAAP") as
applied to the Debtors' historical financial statements and should not be relied
upon as such.
THE PROJECTIONS PROVIDED HEREIN HAVE BEEN PREPARED EXCLUSIVELY BY THE
DEBTORS' MANAGEMENT. THESE PROJECTIONS, WHILE PRESENTED WITH NUMERICAL
SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND ASSUMPTIONS
WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED, AND ARE
INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE DEBTORS' CONTROL.
THE DEBTORS CAUTION THAT NO REPRESENTATIONS OR WARRANTIES CAN BE MADE AS TO
THEIR ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL
NOT MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE
DATE ON WHICH THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE
ASSUMED OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED, AND THUS THE OCCURRENCE
OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND POSSIBLY ADVERSE
MANNER. THE
PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A GUARANTY OR OTHER ASSURANCE
OF THE ACTUAL RESULTS THAT WILL OCCUR.
The Projections should be read in conjunction with the assumptions,
qualifications and expectations set forth herein and in the "Business" section,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section and the Consolidated Financial Statements (including the
notes and schedules thereto) in Leap's 2002 Annual Report of Form 10-K/A,
annexed as Exhibit D to this Disclosure Statement and in Leap's Quarterly Report
on Form 10-Q for the period ending March 31, 2003, annexed as Exhibit E to this
Disclosure Statement. The Debtors also urge you to read the section entitled
"Risk Factors" in Leap's Quarterly Report on Form 10-Q for the period ending
March 31, 2003. The risks described in that section may affect the Reorganized
Debtors' ability to achieve the projected results.
PRINCIPAL ASSUMPTIONS FOR THE PROJECTIONS
The Projections are based on, and assume the successful implementation
of, the Debtors' business plan and the Joint Plan of Reorganization. Both the
business plan and the Projections reflect numerous assumptions, including
various assumptions regarding the anticipated future performance of the Debtors,
industry performance, general business and economic conditions and other
matters, most of which are beyond the control of the Debtors. Therefore,
although the Projections are necessarily presented with numerical specificity,
the actual results achieved during the Projection Period will vary from the
projected results. These variations may be material. Accordingly, no
representation or warranty can be or is being made with respect to the
Projections or the ability of the Debtors or the Reorganized Debtors to achieve
the projected results of operations. See the section entitled "Risk Factors" in
Leap's Quarterly Report on Form 10-Q for the period ending March 31, 2003,
annexed as Exhibit E to this Disclosure Statement.
(a) Key Projected Operating and Financial Assumptions
Additional information relating to the key projected operating and
financial assumptions used in preparing the Projections is set forth in the
Projections under the heading "Metrics," which includes key assumptions used by
the Debtors' management relating to numbers of customers (subs), churn, average
revenue per user per month (ARPU), cost per gross customer addition (CPGA) and
non-selling cash costs per user per month (CCU) to prepare the Projections.
(b) Effective Date
The projected consolidated pro forma financial information of the
Debtors set forth below has been prepared based on the assumption that the
Effective Date under the Debtors' Joint Plan of Reorganization will be September
30, 2003. Although the Debtors' will seek to cause the Effective Date to occur
as soon as practicable, it could occur well after September 30, 2003, and there
can be no assurance as to when the Effective Date actually will occur.
(c) New Senior Secured Notes
The Debtors' management has assumed for the purpose of the Projections
that the new Senior Secured Notes to be issued by Reorganized Cricket on the
Effective Date will be in the aggregate principal amount of $350.0 million. The
new Senior Secured Notes are described in greater detail in the "Description of
New Senior Notes" attached as Exhibit K to the Disclosure Statement. The
Debtors' management has assumed for the purpose of the Projections that the
terms of the new Senior Secured Notes would be as follows: (a) maturity date of
September 30, 2010, (b) 12.0% pay-in-kind semi-annual interest payments for the
first two years, (c) 1.0% cash-pay semi-annual interest payments for the first
two years, and (d) 13.0% cash-pay semi-annual interest payments from December
31, 2005 to maturity.
(d) Existing FCC Debt
The Debtors' management has assumed for the purpose of the Projections
that the Debtors' pre-petition FCC Debt will be reinstated and that any and all
accrued interest and principal amortization payments in arrears are made shortly
after the Effective Date. The remaining FCC Debt balances as of the Effective
Date would be repaid under their original amortization schedule.
(e) Income Taxes
The Debtors' management has assumed for the purpose of the Projections
that any and all gains associated with the extinguishment of existing debt as
part of the Joint Plan of Reorganization will be offset by the Debtors' existing
net operating losses and carryforwards and other tax attributes. Subsequent to
the Effective Date, the Debtors will generate additional net operating losses,
so that the first year in which the Debtors' project to pay income taxes is
2009.
(f) Accounting Adjustments
The projected consolidated balance sheet information as of September
30, 2003 for the Reorganized Debtors reflects the Debtors' preliminary estimates
of adjustments required by "fresh start" accounting as of the Effective Date of
the Joint Plan of Reorganization. Actual "fresh start" accounting adjustments to
the Debtors' consolidated financial statements upon the Effective Date of the
Joint Plan of Reorganization are likely to differ from those reflected in the
Projections and such differences could be material.
CONSOLIDATED PROFORMA PROJECTIONS Q3 - 03 Q4 - 03 Q1 - 04 Q2 - 04 Q3 - 04
METRICS
Beginning Subs 1,430,184 1,480,658 1,512,143 1,550,576
Ending Subs 1,480,658 1,512,143 1,550,576 1,598,002
Churn % 4.3% 3.9% 3.7% 3.6%
Covered Pops 25,533,664 25,533,664 25,533,664 25,533,664
ARPU $ 36.26 $ 37.14 $ 37.44 $ 37.55
CPGA $ 241 $ 250 $ 247 $ 244
CCU $ 22.76 $ 21.70 $ 21.64 $ 21.41
INCOME STATEMENT (000s)
Revenue
Service Revenue 157,499 166,696 171,836 177,327
Equipment Revenue 17,680 17,122 17,220 17,737
--------------------------------------------------------
Total Revenue 175,179 183,818 189,056 195,064
Operating Expenses
Network Ops 53,186 53,082 53,953 54,884
Cost of Equipment Revenue 49,168 43,429 43,660 44,971
--------------------------------------------------------
Total Operating Expenses 102,354 96,511 97,612 99,856
Total Gross Profit 72,824 87,307 91,444 95,209
Margin % 42% 47% 48% 49%
Customer Care 22,378 22,965 23,772 24,351
Sales and Marketing 31,098 30,361 30,516 31,017
G&A 17,935 16,466 16,590 16,715
--------------------------------------------------------
EBITDA 1,414 17,515 20,565 23,126
Margin % (exludes equipment revenue) 1% 11% 12% 13%
Depreciation & amortization 9,690 10,128 10,551 10,973
--------------------------------------------------------
EBIT -8,277 7,387 10,015 12,153
Interest Expense Cash 1,170 2,790 959 2,732
Interest Expense Non-Cash 436 21,368 368 22,628
Interest Income & Gain on debt extinguishment -289 -292 -312 -350
Loan Fees and Other -3,200 0 0 0
--------------------------------------------------------
Total Interest -1,884 23,866 1,015 25,010
--------------------------------------------------------
Earnings before Taxes -6,393 -16,479 9,000 -12,858
Taxes 0 0 0 0
--------------------------------------------------------
NET INCOME -6,393 -16,479 9,000 -12,858
CONSOLIDATED PROFORMA PROJECTIONS Q4 - 04 2004 2005 2006 2007
METRICS
Beginning Subs 1,598,002 1,480,658 1,672,298 1,875,083 2,082,583
Ending Subs 1,672,298 1,672,298 1,875,083 2,082,583 2,257,867
Churn % 3.4% 3.7% 3.35% 3.15% 3.05%
Covered Pops 25,533,664 25,533,664 25,789,639 25,918,587 26,048,180
ARPU $ 37.12 $ 37.37 $ 37.08 $ 37.06 $ 36.78
CPGA $ 234 $ 243 $ 236 $ 226 $ 223
CCU $ 20.99 $ 21.46 $ 20.36 $ 19.10 $ 18.15
INCOME STATEMENT (000s)
Revenue
Service Revenue 182,310 698,170 789,317 880,035 957,962
Equipment Revenue 19,300 71,379 77,390 86,443 87,189
-----------------------------------------------------------------------
Total Revenue 201,610 769,548 866,707 966,478 1,045,151
Operating Expenses
Network Ops 55,868 217,787 240,588 253,992 266,387
Cost of Equipment Revenue 48,997 181,057 188,083 194,584 196,285
-----------------------------------------------------------------------
Total Operating Expenses 104,865 398,844 428,671 448,576 462,672
Total Gross Profit 96,745 370,704 438,036 517,902 582,480
Margin % 48% 48% 51% 54% 56%
Customer Care 25,053 96,140 103,332 109,871 115,059
Sales and Marketing 32,410 124,304 127,612 129,926 130,754
G&A 16,841 66,612 67,530 67,530 67,530
-----------------------------------------------------------------------
EBITDA 22,441 83,648 139,561 210,574 269,136
Margin % (exludes equipment revenue) 12% 12% 18% 24% 28%
Depreciation & amortization 11,396 43,048 63,853 69,555 72,791
-----------------------------------------------------------------------
EBIT 11,045 40,600 75,708 141,018 196,345
Interest Expense Cash 794 7,275 7,115 59,141 57,566
Interest Expense Non-Cash 368 44,734 49,584 387 11
Interest Income & Gain on debt extinguishment -382 -1,337 -1,783 -2,045 -2,470
Loan Fees and Other 0 0 0 0 0
-----------------------------------------------------------------------
Total Interest 780 50,672 54,916 57,483 55,107
-----------------------------------------------------------------------
Earnings before Taxes 10,265 -10,072 20,792 83,536 141,237
Taxes 0 0 0 0 0
-----------------------------------------------------------------------
NET INCOME 10,265 -10,072 20,792 83,536 141,237
CONSOLIDATED PROFORMA PROJECTIONS 2008 2009 2010
METRICS
Beginning Subs 2,257,867 2,384,654 2,478,943
Ending Subs 2,384,654 2,478,943 2,548,509
Churn % 3.00% 2.98% 2.96%
Covered Pops 26,178,421 26,178,421 26,178,421
ARPU $ 36.45 $ 35.87 $ 35.34
CPGA $ 222 $ 222 $ 222
CCU $ 17.50 $ 17.09 $ 16.83
INCOME STATEMENT (000s)
Revenue
Service Revenue 1,015,272 1,046,669 1,065,933
Equipment Revenue 86,178 85,123 83,769
-----------------------------------------
Total Revenue 1,101,450 1,131,793 1,149,702
Operating Expenses
Network Ops 277,131 286,186 294,136
Cost of Equipment Revenue 194,107 194,214 193,717
-----------------------------------------
Total Operating Expenses 471,238 480,400 487,853
Total Gross Profit 630,212 651,392 661,849
Margin % 57% 58% 58%
Customer Care 118,018 119,199 119,137
Sales and Marketing 130,506 130,569 130,616
G&A 67,530 67,530 67,530
-----------------------------------------
EBITDA 314,158 334,094 344,566
Margin % (exludes equipment revenue) 31% 32% 32%
Depreciation & amortization 89,996 104,433 103,137
-----------------------------------------
EBIT 224,162 229,661 241,429
Interest Expense Cash 57,443 57,443 57,443
Interest Expense Non-Cash 0 0 0
Interest Income & Gain on debt extinguishment -4,108 -6,440 -8,257
Loan Fees and Other 0 0 0
-----------------------------------------
Total Interest 53,335 51,003 49,186
-----------------------------------------
Earnings before Taxes 170,827 178,658 192,243
Taxes 0 25,214 52,121
-----------------------------------------
NET INCOME 170,827 153,444 140,122
CONSOLIDATED PROFORMA PROJECTIONS Q3 - 03 Q4 - 03 Q1 - 04 Q2 - 04 Q3 - 04 Q4 - 04 2004
BALANCE SHEET (000s)
Current Assets:
Cash and Equivalents 112,604 97,222 96,514 100,949 109,169 127,308 127,308
Accounts Receivable 11,039 12,261 12,105 12,183 12,237 12,497 12,497
Inventories 22,802 21,577 21,597 22,376 22,622 23,510 23,510
Other Current Assets 26,491 21,491 21,491 21,491 21,491 21,491 21,491
----------------------------------------------------------------------------
Total Current Assets 172,936 152,551 151,707 156,998 165,519 184,806 184,806
Net Fixed Assets 94,906 94,553 92,882 90,787 88,269 85,329 85,329
Net Licenses & Goodwill 336,540 336,540 336,540 336,540 336,540 336,540 336,540
Deposits and Deferred Financing 6,358 6,358 6,358 6,358 6,358 6,358 6,358
TOTAL ASSETS 610,740 590,003 587,487 590,683 596,686 613,033 613,033
============================================================================
Current Liabilities
Current portion of FCC debt 27,423 18,932 14,306 19,769 19,769 19,769 19,769
AP, Accruals, and Deferred Revenue 125,869 124,422 121,642 120,167 121,168 131,723 131,723
----------------------------------------------------------------------------
Total Current Liabilities 153,337 143,398 135,992 139,980 140,981 151,536 151,536
DEBT:
Restructured Debt Instrument 350,000 350,000 371,000 371,000 393,260 393,260 393,260
Deferred Tax & Other Long Term Liabilities 24,981 24,981 24,981 24,981 24,981 24,981 24,981
FCC Debt 45,910 41,504 41,872 32,082 27,682 23,209 23,209
----------------------------------------------------------------------------
Total Liabilities 574,227 559,883 573,845 568,042 586,904 592,985 592,985
Total Shareholders Equity 36,513 30,120 13,641 22,641 9,783 20,048 20,048
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 610,740 590,003 587,487 590,683 596,686 613,033 613,033
============================================================================
CASH FLOW (000s)
Cash Flow from Operations
Net Income -6,393 -16,479 9,000 -12,858 10,265 -10,072
Add:
Depreciation & Amortization 9,690 10,128 10,551 10,973 11,396 43,048
----------------------------------------------------------------
Subtotal 3,298 -6,351 19,550 -1,885 21,661 32,976
Changes in Working Capital
Accounts Receivable -1,223 156 -78 -54 -260 -236
Inventory 1,226 -20 -779 -247 -888 -1,934
Other current assets 5,000 0 0 0 0 0
Accounts Payable -1,447 -2,780 -1,475 1,001 10,555 7,301
----------------------------------------------------------------
Cash Needed/Provided from W/C 3,556 -2,644 -2,332 701 9,407 5,131
----------------------------------------------------------------
Net Cash From Operations 6,854 -8,995 17,218 -1,184 31,068 38,107
Cash from Investing Activities
Capital Expenditures -9,338 -8,456 -8,456 -8,456 -8,456 -33,824
Goodwill & Intangibles 0 0 0 0 0 0
----------------------------------------------------------------
Net Cash From Investing Activities -9,338 -8,456 -8,456 -8,456 -8,456 -33,824
Cash From Financing Activities
FCC Debt Drawdowns (Debt Discount Amortization) 436 368 368 368 368 1,474
FCC Debt Paydowns -13,333 -4,625 -4,696 -4,768 -4,842 -18,932
Other Long Term Liabilities - Drawdowns 0 0 0 0 0 0
Other Long Term Liabilities - Paydowns 0 0 0 0 0 0
Restructured Debt Instrument 0 21,000 0 22,260 0 43,260
----------------------------------------------------------------
Net Cash From Financing Activities -12,897 16,743 -4,328 17,860 -4,473 25,802
Net Change In Cash -15,382 -708 4,435 8,220 18,139 30,086
Beginning Cash 112,604 97,223 96,514 100,949 109,169 97,223
----------------------------------------------------------------
Ending Cash 97,223 96,514 100,949 109,169 127,308 127,308
CONSOLIDATED PROFORMA PROJECTIONS 2005 2006 2007 2008 2009 2010
BALANCE SHEET (000s)
Current Assets:
Cash and Equivalents 143,221 169,442 278,455 433,861 554,943 263,061
Accounts Receivable 13,866 14,071 14,233 14,351 14,444 10,509
Inventories 24,323 24,536 24,263 24,263 24,277 24,215
Other Current Assets 21,491 21,491 21,491 21,491 21,486 21,486
----------------------------------------------------------------------
Total Current Assets 202,901 229,540 338,442 493,966 615,149 319,270
Net Fixed Assets 110,000 147,916 178,145 194,207 191,361 185,774
Net Licenses & Goodwill 336,540 336,540 336,540 336,540 336,540 336,540
Deposits and Deferred Financing 6,358 6,358 6,358 6,358 6,358 6,358
TOTAL ASSETS 655,799 720,354 859,485 1,031,071 1,149,409 847,942
======================================================================
Current Liabilities
Current portion of FCC debt 21,133 3,451 0 0 0 0
AP, Accruals, and Deferred Revenue 123,881 125,647 126,980 127,739 127,769 128,047
----------------------------------------------------------------------
Total Current Liabilities 145,058 129,142 127,023 127,783 127,813 128,091
DEBT:
Restructured Debt Instrument 441,867 441,867 441,867 441,867 441,867 0
Deferred Tax & Other Long Term Liabilities 24,981 24,981 24,981 24,981 -10,155 -10,155
FCC Debt 3,053 -11 0 0 0 0
----------------------------------------------------------------------
Total Liabilities 614,959 595,978 593,871 594,631 559,524 117,935
Total Shareholders Equity 40,840 124,376 265,613 436,440 589,884 730,006
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 655,799 720,354 859,484 1,031,071 1,149,408 847,942
======================================================================
CASH FLOW (000s)
Cash Flow from Operations
Net Income 20,792 83,536 141,237 170,827 153,444 140,122
Add:
Depreciation & Amortization 63,853 69,555 72,791 89,996 104,433 103,137
----------------------------------------------------------------------
Subtotal 84,645 153,091 214,028 260,823 257,877 243,259
Changes in Working Capital
Accounts Receivable -1,369 -206 -162 -118 -94 3,935
Inventory -813 -213 272 0 -13 62
Other current assets 0 0 0 0 6 0
Accounts Payable -7,842 1,766 1,333 760 30 278
----------------------------------------------------------------------
Cash Needed/Provided from W/C -10,024 1,347 1,444 642 -72 4,275
----------------------------------------------------------------------
Net Cash From Operations 74,622 154,439 215,472 261,465 257,805 247,534
Cash from Investing Activities
Capital Expenditures -88,524 -107,471 -103,019 -106,059 -101,587 -97,549
Goodwill & Intangibles 0 0 0 0 0 0
----------------------------------------------------------------------
Net Cash From Investing Activities -88,524 -107,471 -103,019 -106,059 -101,587 -97,549
Cash From Financing Activities
FCC Debt Drawdowns (Debt Discount Amortization) 977 387 11 0 0 0
FCC Debt Paydowns -19,769 -21,133 -3,451 0 0 0
Other Long Term Liabilities - Drawdowns 0 0 0 0 0 0
Other Long Term Liabilities - Paydowns 0 0 0 0 -35,136 0
Restructured Debt Instrument 48,607 0 0 0 0 -441,867
----------------------------------------------------------------------
Net Cash From Financing Activities 29,815 -20,746 -3,440 0 -35,136 -441,867
Net Change In Cash 15,913 26,221 109,013 155,406 121,082 -291,882
Beginning Cash 127,308 143,221 169,442 278,455 433,861 554,943
----------------------------------------------------------------------
Ending Cash 143,221 169,442 278,455 433,861 554,943 263,061
The Projections constitute "forward-looking statements" reflecting management's
current forecast of the Debtors' results of operations, cash flows and certain
other items for the Projection Period. The Projections are based on current
information, which management has assessed but which by its nature is dynamic
and subject to rapid and even abrupt changes. Actual results could differ
materially from those stated or implied by such forward-looking statements due
to risks and uncertainties associated with our business. Factors that could
cause actual results to differ include, but are not limited to:
- our ability to cause a Chapter 11 plan of reorganization to be
finalized and to be confirmed by the Bankruptcy Court, and our
ability to successfully implement the plan;
- our ability to continue as a going concern;
- our ability to obtain Bankruptcy Court approval with respect to
motions prosecuted by us in our Chapter 11 cases from time to
time;
- risks associated with third parties seeking and obtaining
Bankruptcy Court approval to terminate or shorten the exclusivity
period to propose and confirm one or more plans of reorganization,
for the appointment of a Chapter 11 trustee or to convert the
Chapter 11 cases to Chapter 7 cases;
- our ability to obtain and maintain normal terms with vendors and
service providers;
- our ability to maintain contracts that are critical to our
operations;
- the potential adverse impacts of the Chapter 11 cases on the
liquidity or results of operations of Cricket;
- our ability to attract, motivate and/or retain key executives and
other employees;
- our ability to attract and retain customers;
- the unsettled nature of the wireless market, the current economic
slowdown, service offerings of increasingly large bundles of
minutes of use at increasingly low prices by some major carriers,
other issues facing the telecommunications industry in general,
our announcement of restructuring discussions, and our subsequent
Chapter 11 filing, which have created a level of uncertainty that
adversely affects our ability to predict future customer growth,
as well as other key operating metrics;
- changes in economic conditions that could adversely affect the
market for wireless services;
- the acceptance of our product offering by our prospective
customers;
- the effects of actions beyond our control in our distribution
network;
- rulings by courts or the Federal Communications Commission (FCC)
adversely affecting our rights to own and/or operate certain
wireless licenses, or changes in our ownership that could
adversely affect our status as an "entrepreneur" under FCC rules
and regulations;
- our ability to maintain our cost, market penetration and pricing
structure in the face of competition;
- failure of network systems to perform according to expectations;
- the effects of competition;
- global political unrest, including the threat or occurrence of war
or acts of terrorism; and
- other factors detailed in the section entitled "Risk Factors"
included in Leap's Quarterly Report on Form 10-Q for the first
fiscal quarter of 2003 and in its other SEC filings.
The Projections should be considered in the context of these risk factors.
Stakeholders are cautioned not to place undue reliance on such forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Exhibit M - Valuation of Reorganized Leap (1)
INTRODUCTION
To assist the Debtors' management in evaluating the Plan and the distributions
that holders of Claims and Interests will receive under the Plan, the Debtors'
management requested that the Debtors' financial advisor, UBS Securities LLC
("UBS") (formerly known as UBS Warburg LLC), undertake an analysis of the
estimated range of the going concern enterprise value of Reorganized Leap
(including the other Debtors, on a consolidated basis), after giving effect to
the reorganization as set forth in the Plan. In performing this analysis, UBS
has assumed that substantially all assets of value currently residing at Leap
Wireless International, Inc. (including cash and wireless spectrum assets) are
distributed for the benefit of Leap creditors as contemplated by the Plan, and
the analysis referenced herein relates to only the business and assets remaining
within Reorganized Leap and its subsidiaries post-reorganization.
In conducting its analysis, UBS, among other things: (a) reviewed certain
publicly-available business and historical financial information relating to the
Debtors; (b) reviewed certain internal financial information and other data
relating to the business and financial prospects of Reorganized Leap, including
the financial projections through 2011 (the "Financial Projections") prepared by
management of Leap and its operating subsidiary, Cricket Communications, of
which projection years 2003 to 2010 are set forth under "Exhibit G-Projections
for Reorganized Leap," which were provided to UBS by the Debtors; (c) conducted
discussions with members of the Debtors' senior management concerning the
business and financial prospects of Reorganized Leap; (d) reviewed
publicly-available financial and stock market data with respect to certain other
companies in lines of business UBS believed to be comparable in certain respects
to Reorganized Leap's businesses; (e) reviewed the financial terms, to the
extent available, of certain completed or announced transactions involving
companies or wireless spectrum assets that UBS believed to be generally
relevant; (f) considered certain industry and economic information relevant to
Reorganized Leap's businesses; (g) reviewed the Plan and the information in this
Disclosure Statement as of July 8, 2003; and (h) conducted such other financial
studies, analyses and investigations, and considered such other information, as
UBS deemed necessary or appropriate.
THE ESTIMATED GOING CONCERN ENTERPRISE VALUE OF REORGANIZED LEAP SET FORTH IN
THIS SECTION REPRESENTS A HYPOTHETICAL VALUATION OF REORGANIZED LEAP, ASSUMING
THAT REORGANIZED LEAP CONTINUES AS AN OPERATING BUSINESS, ESTIMATED BASED ON
VARIOUS VALUATION METHODOLOGIES. IT DOES NOT PURPORT TO CONSTITUTE AN APPRAISAL
OR NECESSARILY REFLECT THE ACTUAL MARKET VALUE THAT MIGHT BE REALIZED THROUGH A
SALE OR LIQUIDATION OF REORGANIZED LEAP, ITS SECURITIES OR ITS ASSETS, WHICH
VALUE MAY BE SIGNIFICANTLY HIGHER OR LOWER. ACCORDINGLY, SUCH ESTIMATED GOING
CONCERN ENTERPRISE VALUE IS NOT NECESSARILY INDICATIVE OF THE PRICES AT WHICH
THE NEW COMMON STOCK OR OTHER SECURITIES OF REORGANIZED LEAP MAY TRADE AFTER
GIVING EFFECT TO THE REORGANIZATION SET FORTH IN THE PLAN, WHICH PRICES MAY BE
SIGNIFICANTLY HIGHER OR LOWER THAN INDICATED BY SUCH ESTIMATE. The actual value
of an operating business, such as Reorganized Leap, is subject to various
factors, many of which are beyond the control or knowledge of the Debtors or
UBS, and such value will fluctuate with changes in such factors. In addition,
the market prices of Reorganized Leap's securities will depend upon, among other
things, prevailing interest rates, conditions in the financial markets, the
investment decisions of prepetition creditors
- -----------------
(1) Capitalized terms used herein and not defined herein have the meaning
ascribed thereto in the First Amended Joint Plan of Reorganization (the "Plan")
receiving such securities under the Plan (some of whom may prefer to liquidate
their investment rather than hold it on a long-term basis), and other factors
that generally influence the prices of securities. There can be no assurance as
to the trading market, if any, that may be available in the future with respect
to Reorganized Leap's securities.
UBS's analysis was undertaken solely for the purpose of assisting the Debtors'
management in evaluating the Plan and the distributions that holders of Claims
and Interests will receive under the Plan. UBS's analysis addresses the
estimated going concern enterprise value of Reorganized Leap and does not
address any other aspect of the proposed reorganization, the Plan, any other
transactions, or the Debtors' underlying business decision to effect the
reorganization set forth in the Plan. UBS'S ESTIMATED GOING CONCERN ENTERPRISE
VALUE OF REORGANIZED LEAP DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
CLAIMS OR INTERESTS AS TO HOW SUCH PERSON SHOULD VOTE OR OTHERWISE ACT WITH
RESPECT TO THE PLAN. UBS has not been asked to, nor did UBS, express any view as
to what the value of Reorganized Leap's securities will be when issued pursuant
to the Plan or the prices at which they may trade in the future. The estimated
going concern enterprise value of Reorganized Leap set forth herein does not
constitute an opinion as to fairness from a financial point of view to any
person of the consideration to be received by such person under the Plan or of
the terms and provisions of the Plan.
UBS's analysis is based upon, among other things, Reorganized Leap achieving the
Financial Projections prepared by management. The future results of Reorganized
Leap are dependent upon various factors, many of which are beyond the control or
knowledge of the Debtors, and consequently are inherently difficult to project.
The financial results reflected in the Financial Projections are in certain
respects materially better than the recent historical results of operations of
the Debtors. Reorganized Leap's actual future results may differ materially from
the Financial Projections and such differences may affect the value of
Reorganized Leap. See "Exhibit G-Projections for Reorganized Leap." ACCORDINGLY,
FOR THESE AND OTHER REASONS, SUCH ESTIMATED GOING CONCERN ENTERPRISE VALUE IS
NOT NECESSARILY INDICATIVE OF ACTUAL VALUE, WHICH MAY BE SIGNIFICANTLY HIGHER OR
LOWER THAN THE ESTIMATES HEREIN.
In addition, the estimated going concern enterprise value of Reorganized Leap in
this section is with respect to Reorganized Leap as reorganized pursuant to the
Plan. UBS has not been asked to address, and has not addressed, the estimated
going concern enterprise value of Leap as reorganized under a plan different
from the Plan (including any plan involving the investment of new money to fund
business expansion).
As part of its investment banking business, UBS is regularly engaged in
evaluating businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements,
restructurings and reorganizations and valuations for estate, corporate and
other purposes. In the ordinary course of business, UBS, its successors and
affiliates may trade securities of the Debtors for the accounts of their
customers and may in the future trade securities of Reorganized Leap for their
own accounts and the accounts of their customers and, accordingly, may at any
time hold a long or short position in such securities.
UBS completed its analysis on July 17, 2003 and delivered its analysis to the
Debtors' management on July 17, 2003.
METHODOLOGY
In preparing its valuation, UBS performed a variety of financial analyses and
considered a variety of factors. The following is a brief summary of the
material financial analyses performed by UBS, which included (a) an analysis of
the market value and trading multiples of selected publicly-held companies in
lines of business UBS believed to be comparable in certain respects to
Reorganized Leap's businesses, (b) an analysis of selected completed or
announced transactions involving companies or wireless spectrum assets UBS
believed to be generally relevant and (c) a discounted cash flow analysis to
estimate the present value of Reorganized Leap's future consolidated, unlevered,
after-tax cash flows available to debt and equity investors based on the
Financial Projections. The summary does not purport to be a complete description
of the analyses performed and factors considered by UBS. The preparation of a
valuation analysis is a complex analytical process involving various judgmental
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to particular facts and
circumstances, and such analyses and judgments are not readily susceptible to
summary description. In particular, UBS's valuation of Reorganized Leap
reflects, among other things, the following:
- - the assumption that virtually all assets of value currently residing at Leap
Wireless International, Inc. (including cash and wireless spectrum assets)
are distributed for the benefit of Leap creditors as contemplated by the
Plan and are not part of Reorganized Leap;
- - UBS has applied its financial analysis to both the Debtors' primary line of
business (wireless telecommunications) as well as the excess wireless
spectrum assets assumed to remain within Reorganized Leap
post-reorganization ("excess spectrum");
- - UBS has relied on management forecasts of excess cash on hand as of the
assumed effective date (defined as cash expected by management to be held by
Reorganized Leap post-reorganization and not planned to be utilized in the
realization of its business projections); and
- - UBS has aggregated the implied valuation of the Debtors' primary line of
business with the implied valuation of its excess spectrum and excess cash
to establish a going concern enterprise value for Reorganized Leap on a
consolidated basis.
UBS believes that its analyses must be considered as a whole and that selecting
portions of its analyses, without considering all its analyses, could create a
misleading or incomplete view of the processes underlying UBS's conclusions. UBS
did not draw, in isolation, conclusions from or with regard to any one analysis
or factor, nor did UBS place any particular reliance or weight on any individual
analysis. Rather, UBS arrived at its views based on all the analyses undertaken
by it assessed as a whole.
For purposes of UBS's analysis, the estimated going concern enterprise value of
Reorganized Leap equals the value of its fully diluted common equity plus its
outstanding debt, determined based on Reorganized Leap, on a consolidated basis,
as an operating business, after giving effect to the reorganization set forth in
the Plan.
SELECTED PUBLICLY-TRADED COMPANIES ANALYSIS. UBS analyzed the market value and
trading multiples of selected publicly-held companies in lines of business UBS
believed to be comparable in certain respects to Reorganized Leap's businesses.
To the extent such selected companies also operated in lines of business that
were unlike the Debtors, UBS made adjustments to the market values and other
financial data of the selected companies as appropriate. UBS calculated the
enterprise value of the selected companies as a multiple of certain historical
and projected financial data of such companies (adjusted as described above).
UBS then analyzed those multiples and compared them with multiples derived by
assigning a range of going concern enterprise values to Reorganized Leap and
dividing those enterprise values by the corresponding historical and projected
financial data of Reorganized Leap. The projected financial data for Reorganized
Leap were based on the Financial Projections and the projected financial data
for the selected companies were based on publicly available research analyst
reports and other publicly available information.
Although the selected companies were used for comparison purposes, no selected
company is either identical or directly comparable to Reorganized Leap.
Accordingly, UBS's comparison of the selected companies to Reorganized Leap and
analysis of the results of such comparisons was not purely mathematical, but
instead necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the relative values of the selected companies and of Reorganized
Leap.
SELECTED TRANSACTIONS ANALYSIS. UBS reviewed selected completed or announced
transactions involving companies or wireless spectrum assets that UBS believed
to be generally relevant. UBS calculated the enterprise value of the companies
or wireless spectrum assets implied by the transactions as a multiple of certain
historical financial data of such companies. To the extent such companies also
operated in lines of business that were unlike the Debtors, UBS made adjustments
to the enterprise values and historical financial data of the selected companies
as appropriate. UBS then analyzed those multiples and compared them with the
multiples derived by assigning a range of going concern enterprise values to
operations and excess spectrum of Reorganized Leap and dividing those enterprise
values by the corresponding historical financial data of Reorganized Leap.
Although the selected transactions were used for comparison purposes, no
selected transaction is either identical or directly comparable to those set
forth in the Plan and no companies or wireless spectrum assets involved in the
selected transactions were either identical or directly comparable to the
operations and excess spectrum of Reorganized Leap. Accordingly, UBS's analysis
of the selected transactions was not purely mathematical, but instead
necessarily involved complex considerations and judgments concerning differences
in transaction structure, financial and operating characteristics of the
companies and wireless spectrum assets involved and other factors that could
affect the relative values achieved in such transactions and the enterprise
value of Reorganized Leap. In reviewing the relevant transactions, UBS noted
that many of the transactions were announced in a materially more favorable
valuation environment for telecommunications companies and for wireless spectrum
assets.
DISCOUNTED CASH FLOW ANALYSIS. UBS performed a discounted cash flow analysis to
estimate the present value of Reorganized Leap's future consolidated, unlevered,
after-tax cash flows available to debt and equity investors based on the
Financial Projections. UBS used the Financial Projections of Reorganized Leap's
consolidated cash flow through 2011. For the purpose of calculating the terminal
value as of 2011, the cash flow projection from the Debtors' financial
projections for 2011 was adjusted for a statutory tax rate and the assumption
that annual depreciation expense would equal annual capital expenditures. UBS
calculated a range of terminal values by applying a range of perpetual growth
factors to the terminal year cash flow projection. UBS then applied a range of
discount rates to arrive at a range of present values of those cash flows and
terminal values. The discounted cash flow analysis also involves complex
considerations and judgments concerning appropriate adjustments to terminal year
cash flows for perpetuity purposes, perpetuity growth factors and discount
rates.
ESTIMATED GOING CONCERN ENTERPRISE VALUE OF REORGANIZED LEAP
IN CONNECTION WITH UBS'S ANALYSIS, WITH THE DEBTORS' CONSENT, UBS HAS NOT
ASSUMED ANY RESPONSIBILITY FOR INDEPENDENT VERIFICATION OF ANY OF THE
INFORMATION PROVIDED TO UBS, PUBLICLY AVAILABLE TO UBS OR OTHERWISE REVIEWED BY
UBS, AND UBS, WITH THE DEBTORS' CONSENT, HAS RELIED ON SUCH INFORMATION BEING
COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS. UBS HAS FURTHER RELIED UPON THE
REPRESENTATIONS OF THE DEBTORS' SENIOR MANAGEMENT THAT THEY ARE NOT AWARE OF ANY
FACTS OR CIRCUMSTANCES THAT WOULD MAKE SUCH INFORMATION INACCURATE OR
MISLEADING. WITH RESPECT TO THE DEBTORS' FINANCIAL PROJECTIONS, UBS HAS ASSUMED,
AT THE DEBTORS' DIRECTION, THAT SUCH FINANCIAL PROJECTIONS HAVE BEEN REASONABLY
PREPARED ON A BASIS REFLECTING THE BEST CURRENTLY AVAILABLE ESTIMATES AND
JUDGMENTS OF THE DEBTORS' SENIOR MANAGEMENT AS TO THE FUTURE PERFORMANCE OF
REORGANIZED LEAP AFTER GIVING EFFECT TO THE REORGANIZATION AS SET FORTH IN THE
PLAN.
In addition, with the Debtors' consent, UBS has not independently evaluated the
achievability of the Financial Projections or the reasonableness of the
assumptions upon which they are based. Furthermore, with the Debtors' consent,
UBS has not made any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of the Debtors that will be part of
Reorganized Leap, nor has UBS been furnished with any such evaluation or
appraisal.
UBS has also assumed, with the Debtors' consent, among other things, the
following (as to which UBS makes no representation):
- - The Plan will be confirmed and consummated in accordance with its terms, and
the Debtors will be reorganized as set forth in the Plan;
- - For purposes of the UBS analysis, the effective date will be September 30,
2003;
- - Reorganized Leap's capitalization and available cash will be as set forth in
the Plan and this Disclosure Statement. In particular, the pro forma
principal amount of indebtedness of Reorganized Leap (on a consolidated book
basis) as of the effective date will be $426.9 million ($423.7 million, net
of GAAP accounting discount);
- - Debtors' existing tax benefits and attributes (including net operating loss
carryforwards) will be completely utilized as part of the reorganization and
no such existing benefits will be available to Reorganized Leap, as
reflected in the Plan and the Financial Projections prepared by the Debtors;
- - Reorganized Leap will be able to obtain all future financings on the terms
and at the times necessary to achieve the Financial Projections;
- - Neither the Debtors nor Reorganized Leap will engage in any material asset
sales or other strategic transaction, and no such asset sales or strategic
transactions are required to meet Reorganized Leap's ongoing cash
requirements;
- - All governmental, regulatory or other consents and approvals necessary for
the consummation of the Plan will be obtained without any material adverse
effect on Reorganized Leap or the Plan;
- - There will not be any material change in the business, condition (financial
or otherwise), results of operations, assets, liabilities or prospects of
the Debtors other than as reflected in the Financial Projections; and
- - There will not be any material change in economic, market, financial and
other conditions.
The estimated range of the going concern enterprise value of Reorganized Leap is
necessarily based on economic, market, financial and other conditions as they
existed on, and on the information available to UBS as of the date of its
analysis, July 17, 2003. Although subsequent developments may affect UBS's
analysis and views, UBS does not have any obligation to update, revise or
reaffirm its estimate.
Based upon and subject to the review and analysis described herein, and subject
to the assumptions, limitations and qualifications described herein, UBS's view,
as of July 17, 2003, was that, subject to no material change in economic,
market, financial or other conditions and no material change in the condition,
projections or prospects of Reorganized Leap, the estimated going concern
enterprise value of Reorganized Leap, as of the assumed effective date
(September 30, 2003), would be in a range between $560 million and $683 million.
EXHIBIT N
RECONCILIATION OF TOTAL LIABILITIES REPORTED BY LEAP WIRELESS
Set forth below is a chart and related footnotes that
reconciles total liabilities reported by Leap Wireless International, Inc. in
its Chapter 11 Petition, its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 and Leap's Schedules filed with the Bankruptcy Court. For
presentation of Leap's standalone total liabilities reported in its Form 10-Q,
please see Note 7 to Leap's consolidated financial statements starting at page
18 of Leap's Form 10-Q.
LEAP WIRELESS LEAP WIRELESS LEAP WIRELESS
CH. 11 PETITION FORM 10-Q SCHEDULES
(DATA AS OF 3/01/03) (DATA AS OF 3/31/03) (DATA AS OF 4/13/03)
-------------------- -------------------- --------------------
SCHEDULE D:
Senior notes (1)
Face value (1) $225,000,000 $ 225,000,000 $ 225,000,000
Discount (warrants) (2) (47,033,123)
Accrued interest (3) 9,374,500 13,906,250
Note payable (NTCH) (4)
Face value (4) 7,971,575 8,383,942 8,383,942
Discount (5) (361,653)
Qualcomm term loan (6)
Face value (6) 1,527,215 1,537,364 1,541,501
Discount (7) (737,028)
Vendor debt (8) 1,611,128,534
-------------------------------------------------------------------
Subtotal 243,873,290 186,789,502 1,859,960,227
-------------------------------------------------------------------
SCHEDULE F:
Senior discount notes (9)
Face value (10) 668,000,000 668,000,000 668,000,000
Discount (unamortized OID) (11) (165,965,168) (165,965,168)
Discount (warrants) (12) (75,944,441)
Excess accrued interest (13) 2,844,112
Senior Notes - also listed as secured
debt (14) 224,632,764
-------------------------------------------------------------------
Subtotal 668,000,000 426,090,391 729,511,708
All other Unsecured Debt (15) 20,974,521 35,564,238 3,927,074
-------------------------------------------------------------------
Subtotal 688,974,521 461,654,629 733,438,782
===================================================================
SCHEDULE E (16): 1,537,685
-------------------------------------------------------------------
TOTAL LIABILITIES $932,847,811 $ 648,444,131 $2,594,936,694
===================================================================
NOTES TO RECONCILIATION OF CERTAIN LIABILITIES
(1) In February 2000, Leap completed an offering of 225,000 senior units,
each senior unit consisting of one 12.5% senior note due 2010 and one warrant to
purchase Leap common stock. Each senior note has a principal amount at maturity
of $1,000. The aggregate outstanding principal amount of the senior notes is
$225,000,000. Interest on the senior notes is payable semi-annually. Under the
terms of the senior units offering, a portion of the proceeds of the senior
units offering was invested in an account pledged by Leap to secure the first
seven interest payments and certain other obligations under the senior notes. As
of the Petition Date, there was approximately $14.3 million in the pledged
account. By order of the Bankruptcy Court, on May 7, 2003 approximately $14.1
million was distributed to the holders of the senior notes in payment of accrued
interest that was payable on April 15, 2003. The remaining approximately
$200,000 in the pledged account is now collateral securing Leap's obligations
under the senior notes. All outstanding amounts under the senior notes in excess
of the approximately $200,000 pledged account are general unsecured obligations
of Leap.
(2) Under U.S. generally accepted accounting principles (GAAP), Leap is
required to allocate a portion of the value received from the senior units
offering to the fair value of the warrants issued to the senior note holders in
the offering. The amount allocated to the fair value of the warrants is
reflected in Leap's GAAP financial statements as "discount" and is amortized
over the life of the senior notes using the effective interest method. The
$47,033,123 reflected as "discount" on the senior notes in the financial
statements included in Leap's Form 10-Q for the quarter ended March 31, 2003 is
the remaining unamortized portion of the value previously allocated to the
warrants. However, as of the Petition Date, the full $225,000,000 aggregate
principal amount outstanding under the senior notes became due and payable, so
that amount was reported in Leap's Schedules.
(3) Accrued interest for the senior notes is included in Other Current
Liabilities on Leap's consolidated balance sheets in Leap's Form 10-Q for the
quarter ended March 31, 2003 (See Note (15)), in contrast to the presentation in
the Petition and the Schedules. The difference between the amounts of accrued
interest reflected in the Petition (shown as of March 1, 2003) and in the
Schedules (shown as of April 13, 2003) is due to the accrual of additional
interest on the senior notes with the passage of time.
(4) In April 2002, Leap completed the exchange of certain wireless licenses
with NTCH and in connection with that transaction, Leap issued to NTCH a note
payable totaling approximately $8.4 million, which is secured by a pledge of the
stock of a Leap subsidiary that owns wireless licenses not used in the Cricket
business. The note is in default. The face value of the NTCH debt reflected in
the Petition was erroneously shown to be net of a scheduled April principal
installment payment that was not made. The actual outstanding principal amount
of the NTCH debt that should have been reflected on the Petition is $8,383,942,
and that amount was reported in Leap's Schedules.
(5) Under U.S. GAAP accounting, Leap is required to present indebtedness in
its financial statements net of a deemed "discount" if the stated interest rate
under an obligation is less than the prevailing market interest rates at the
time the debt is incurred. The amount of the "discount" is the difference
between the stated interest rates and management's best estimate of the
prevailing market interest rates at the time the debt is incurred, and is
amortized over the life of the debt using the effective interest method. The
$361,653 reflected as "discount" on the NTCH note in the financial statements
included in Leap's Form 10-Q for the quarter ended March 31, 2003 is the
remaining unamortized portion of the deemed "discount" on the NTCH note.
However, the full principal amount of $8,383,942 is due and payable under the
note, and that amount was reported in Leap's Schedules.
(6) In January 2001, Leap entered into a secured loan agreement with
Qualcomm Incorporated under which Qualcomm agreed to loan Leap approximately
$125.3 million to finance the acquisition of wireless licenses in the FCC's
Auction #35. Under the agreement, Leap borrowed approximately $1.5 million to
pay loan fees payable under the agreement. This note accrues interest at a
variable rate based on LIBOR and accrued interest is added to the outstanding
principal amount of the note. The differences in the outstanding amounts shown
as of March 1, 2003 in the Petition, as of March 31, 2003 in the Form 10-Q and
as of April 13, 2003 in the Schedules reflect the accrual of additional interest
on the note with the passage of time.
(7) As more fully discussed in Note (5) above, under U.S. GAAP accounting,
Leap is required to present indebtedness in its financial statements net of a
deemed "discount" if the stated interest rate under an obligation is less than
the prevailing market interest rates at the time the debt is incurred. The
$737,028 reflected as "discount" on the Qualcomm note in the financial
statements included in Leap's Form 10-Q for the quarter ended March 31, 2003 is
the remaining unamortized portion of the deemed "discount" on the Qualcomm note.
However, the full outstanding amount of $1,541,501 is due and payable under the
note, and that amount was reported in Leap's Schedules.
(8) In connection with the senior secured vendor debt facilities of Cricket
Communications, Inc., Leap has pledged to the vendor debt collateral pool the
stock of substantially all of Leap's subsidiaries that own FCC wireless
licenses, as security for the repayment of Cricket's indebtedness under the
vendor debt facilities. Leap did not specifically guarantee this debt. As a
result of these pledges of Leap's property as security for the vendor debt, and
in accordance with the instructions to the Schedules, Leap reported the
approximately $1.6 billion amount outstanding under the senior secured vendor
debt facilities on its Schedule D.
(9) In February 2000, Leap completed an offering of 668,000 senior discount
units, each senior discount unit consisting of one 14.5% senior discount note
due 2010 and one warrant to purchase Leap common stock. The senior discount
notes were issued with substantial original issue discount (OID). Each senior
discount note had an initial accreted value of $486.68 and the accreted value
increases over time as interest accrues on the notes through April 15, 2005.
Interest on the senior discount notes (whether accreted or cash pay) is payable
semi-annually. The senior discount notes do not begin to accrue cash interest
until April 15, 2005. Each senior discount note has a principal amount at
maturity of $1,000. The senior discount notes are general unsecured obligations
of Leap.
(10) In preparing its Petition, Leap erroneously included the $668 million
face amount at maturity of the senior discount notes as a liability rather than
the approximately $500 million accreted value of the senior discount notes which
is currently due and payable.
(11) In its GAAP financial statements, the original issue discount that
accretes as interest accrues under the senior discount notes is reflected as
discount. Of the total amounts shown as discount on the senior discount notes in
the financial statements included in Leap's Form 10-Q for the quarter ended
March 31, 2003, $165,965,168 is the remaining unamortized portion of the
original issue discount. However, the approximately $500,000,000 accreted value
under the senior notes became due and payable as of the Petition Date, and
accordingly, that amount is reported on Leap's Schedules.
(12) Under U.S. GAAP, Leap is required to allocate a portion of the value
received from the senior discount units offering to the fair value of the
warrants received by the senior discount note holders in the offering. The
amount allocated to the fair value of the warrants is reflected in Leap's GAAP
financial statements as "discount" and is amortized over the life of the senior
discount notes using the effective interest method. Of the total amounts shown
as discount on the senior discount notes in the financial statements included in
Leap's Form 10-Q for the quarter ended March 31, 2003, $75,944,441 is the
remaining unamortized portion of the value previously allocated to the warrants.
However, the approximately $500,000,000 accreted value under the senior discount
notes became due and payable as of the Petition Date, and accordingly, that
amount is reported on Leap's Schedules.
(13) Represents excess accrued interest on senior notes erroneously reported
on Schedule F.
(14) As more fully described in Note (1), Leap's obligations under the
senior notes are secured by approximately $200,000 of cash collateral in a
pledged account. Thus, the indebtedness under the senior notes was listed as
secured debt on Schedule D. However, the remaining $224,632,764 as of the
Petition Date represents that portion of the senior note obligations which
constitutes general unsecured debt of Leap, and accordingly, that amount was
also reported on Schedule F.
(15) "All Other Unsecured Debt" of Leap reported in the Petition and in the
financial statements included in Leap's Form 10-Q for the quarter ended March
31, 2003 include deferred tax liabilities (net of deferred tax assets), accrued
in accordance with GAAP, of $13.3 million and $14.3 million, respectively.
Deferred tax liabilities (net) were not included on Leap's Schedules because
these deferred liabilities will be eliminated in connection with the company's
emergence from bankruptcy on the effective date of the Plan. As noted above,
accrued interest for the senior notes is included in Other Current Liabilities
on Leap's consolidated financial statements included in Leap's Form 10-Q, but
accrued interest was reported with senior note indebtedness on Schedule D of
Leap's Schedules. Other differences in "All Other Unsecured Debt" of Leap
between Leap's Petition, GAAP financial statements and Schedules are primarily
attributable to fluctuations arising due to the passage of time.
(16) Amounts reported on Leap's Schedule E reflect accrued but unpaid
Chilean taxes and employment tax obligations. Amounts shown on this Schedule
were included in calculating deferred tax liabilities for Leap's GAAP financial
statements, including those set forth in Leap's Form 10-Q for the quarter ended
March 31, 2003.